PAR PACIFIC HOLDINGS, INC. 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We are a growth-oriented company based in Houston, Texas, that owns and operates market-leading energy and infrastructure businesses. For more information, please read “Part I –Item 1. — Business—Overview” of this Form 10-K. Known Trends or Uncertainties While the market indices presented below under “Item 7. — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” are representative of the results of our refineries, each refinery’s realized gross margin on a per barrel basis will differ from the benchmark due to a variety of factors that affect the performance of the specific refinery. These factors include, but are not limited to, the actual type and timing of crude oil throughput; product yields; transportation and storage costs; fuel burn; product premiums or discounts; inventory fluctuations; feedstock and product purchases; commodity price risk-management activities; crude oil purchase financing activities; and other factors not reflected in the benchmark refining margin. We operate in logistically complex, niche markets and, as such, each of our refineries has unique cost advantages and disadvantages as compared to their respective relevant market indices. Recent Events Affecting Comparability of Periods Inflation 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, 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. 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 35 oil. 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 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 Net Loss. 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. Other factors impacting our results period over period include a 2021 gain on sale of assets of $63.9 million primarily related to the Sale-Leaseback Transactions we closed in the first quarter of 2021, asset impairment charges of $1.8 million in 2021 as compared to our 2020 goodwill impairment of $67.9 million and asset impairment charges of $17.9 million, and an other-than-temporary impairment of $45.3 million related to our equity investment in Laramie Energy in 2020. Adjusted EBITDA and Adjusted Net Loss. For the year ended December 31, 2021, Adjusted EBITDA was $125.6 million compared to a loss of $53.1 million for the year ended December 31, 2020. The improvement was primarily related to favorable realized refined product crack spreads at all our refineries, favorable feedstock, purchased product and derivative costs at our Hawaii refinery, and higher refined product sales volumes at our Wyoming refinery, partially offset by unfavorable inventory financing and environmental compliance costs and higher operating expenses. For the year ended December 31, 2021, Adjusted Net Loss was $36.1 million compared to $216.2 million for the year ended December 31, 2020. The change was primarily related to the same factors described above for the increase in Adjusted EBITDA. 36 The following table summarizes our consolidated results of operations for the years ended December 31, 2022, 2021, and 2020 (in thousands). The following should be read in conjunction with our consolidated financial statements under Item 8 of this Annual Report on Form 10-K. Year Ended December 31, 2022 2021 2020 Revenues $ 7,321,785 $ 4,710,089 $ 3,124,870 Cost of revenues (excluding depreciation) 6,376,014 4,338,474 2,947,697 Operating expense (excluding depreciation) 342,209 299,669 277,427 Depreciation and amortization 99,769 94,241 90,036 Impairment expense — 1,838 85,806 Gain on sale of assets, net (169) (64,697) — General and administrative expense (excluding depreciation) 62,396 48,096 41,288 Acquisition and integration costs 3,663 87 614 Total operating expenses 6,883,882 4,717,708 3,442,868 Operating income (loss) 437,903 (7,619) (317,998) Other income (expense) Interest expense and financing costs, net (68,288) (66,493) (70,222) Debt extinguishment and commitment costs (5,329) (8,144) — Gain on curtailment of pension obligation — 2,032 — Other income (expense), net 613 (52) 1,049 Change in value of common stock warrants — — 4,270 Equity earnings (losses) from Laramie Energy, LLC — — (46,905) Total other expense, net (73,004) (72,657) (111,808) Income (loss) before income taxes 364,899 (80,276) (429,806) Income tax benefit (expense) (710) (1,021) 20,720 Net income (loss) $ 364,189 $ (81,297) $ (409,086) 37 The following tables summarize our operating income (loss) by segment for the years ended December 31, 2022, 2021, and 2020 (in thousands). The following should be read in conjunction with our consolidated financial statements under Item 8 of this Annual Report on Form 10-K. Year ended December 31, 2022 Refining Logistics (1) Retail Corporate, Eliminations and Other (2) Total Revenues $ 7,046,060 $ 198,821 $ 570,206 $ (493,302) $ 7,321,785 Cost of revenues (excluding depreciation) 6,332,694 109,458 428,712 (494,850) 6,376,014 Operating expense (excluding depreciation) 245,992 14,988 81,229 — 342,209 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) General and administrative expense (excluding depreciation) — — — 62,396 62,396 Acquisition and integration costs — — — 3,663 3,663 Operating income (loss) $ 401,901 $ 54,049 $ 49,238 $ (67,285) $ 437,903 Year ended December 31, 2021 Refining Logistics (1) Retail Corporate, Eliminations and Other (2) Total Revenues $ 4,471,111 $ 184,734 $ 456,416 $ (402,172) $ 4,710,089 Cost of revenues (excluding depreciation) 4,306,371 96,828 337,476 (402,201) 4,338,474 Operating expense (excluding depreciation) 213,102 14,722 71,845 — 299,669 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 Acquisition and integration costs — — — 87 87 Operating income (loss) $ (88,799) $ 51,159 $ 81,249 $ (51,228) $ (7,619) Year ended December 31, 2020 Refining Logistics (1) Retail Corporate, Eliminations and Other (2) Total Revenues $ 2,886,701 $ 180,909 $ 363,713 $ (306,453) $ 3,124,870 Cost of revenues (excluding depreciation) 2,908,870 110,385 234,885 (306,443) 2,947,697 Operating expense (excluding depreciation) 199,738 13,581 64,108 — 277,427 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 Acquisition and integration costs — — — 614 614 Operating income (loss) $ (331,826) $ 35,044 $ 24,211 $ (45,427) $ (317,998) ________________________________________________________ (1) Our logistics operations consist primarily of intercompany transactions which eliminate on a consolidated basis. (2) Includes eliminations of intersegment Revenues and Cost of revenues (excluding depreciation) of $493.3 million, $402.2 million, and $306.5 million for the years ended December 31, 2022, 2021, and 2020, respectively. 38 Below is a summary of key operating statistics for the refining segment for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, 2022 2021 2020 Total Refining Segment Feedstocks Throughput (Mbpd) 133.8 135.2 124.1 Refined product sales volume (Mbpd) 140.3 138.8 136.7 Hawaii Refinery Feedstocks Throughput (Mbpd) 81.8 82.0 72.7 Yield (% of total throughput) Gasoline and gasoline blendstocks 25.6 % 24.8 % 24.6 % Distillates 38.8 % 45.0 % 42.2 % Fuel oils 31.4 % 26.6 % 29.5 % Other products 0.7 % 0.6 % (0.7) % Total yield 96.5 % 97.0 % 95.6 % Refined product sales volume (Mbpd) On-island sales volume 82.9 82.6 83.5 Exports sales volume 1.1 — 0.6 Total refined product sales volume 84.0 82.6 84.1 Adjusted Gross Margin per bbl ($/throughput bbl) (1) $ 13.99 $ 4.56 $ (1.31) Production costs per bbl ($/throughput bbl) (2) 4.86 3.98 4.03 D&A per bbl ($/throughput bbl) 0.67 0.66 0.55 Washington Refinery Feedstocks Throughput (Mbpd) 35.5 36.3 39.1 Yield (% of total throughput) Gasoline and gasoline blendstocks 24.0 % 23.7 % 23.4 % Distillates 34.3 % 34.5 % 35.3 % Asphalt 20.3 % 20.7 % 18.8 % Other products 18.2 % 18.3 % 19.8 % Total yield 96.8 % 97.2 % 97.3 % Refined product sales volume (Mbpd) 39.7 39.6 39.6 Adjusted Gross Margin per bbl ($/throughput bbl) (1) $ 18.00 $ 2.98 $ 4.67 Production costs per bbl ($/throughput bbl) (2) 4.01 3.86 3.50 D&A per bbl ($/throughput bbl) 2.19 1.57 1.39 39 Year Ended December 31, 2022 2021 2020 Wyoming Refinery Feedstocks Throughput (Mbpd) 16.5 16.9 12.3 Yield (% of total throughput) Gasoline and gasoline blendstocks 49.7 % 47.3 % 49.2 % Distillates 43.1 % 45.7 % 45.2 % Fuel oil 2.4 % 2.2 % 1.9 % Other products 2.1 % 1.7 % 1.3 % Total yield 97.3 % 96.9 % 97.6 % Refined product sales volume (Mbpd) 16.6 16.6 13.0 Adjusted Gross Margin per bbl ($/throughput bbl) (1) $ 26.50 $ 14.47 $ 6.97 Production costs per bbl ($/throughput bbl) (2) 7.32 6.22 8.69 D&A per bbl ($/throughput bbl) 2.85 2.86 4.34 Market Indices (average $ per barrel) 3-1-2 Singapore Crack Spread (3) $ 25.43 $ 6.22 $ 3.15 Pacific Northwest 5-2-2-1 Index (4) 32.40 15.95 11.44 Wyoming 3-2-1 Index (5) 41.32 29.00 17.80 Crude Oil Prices (average $ per barrel) Brent $ 99.04 $ 70.95 $ 43.21 WTI 94.33 68.11 39.65 ANS 102.56 71.49 41.77 Bakken Clearbrook 98.09 68.20 37.19 WCS Hardisty 75.43 54.61 27.45 Brent M1-M3 3.49 1.12 (0.98) ________________________________________________________ (1) We calculate Adjusted Gross Margin per barrel by dividing Adjusted Gross Margin by total refining throughput. Adjusted Gross Margin for our Washington refinery is determined under the last-in, first-out (“LIFO”) inventory costing method. 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. (2) Management uses production costs per barrel to evaluate performance and compare efficiency to other companies in the industry. There are a variety of ways to calculate production costs per barrel; different companies within the industry calculate it in different ways. We calculate production costs per barrel by dividing all direct production costs, which include the costs to run the refineries including personnel costs, repair and maintenance costs, insurance, utilities, and other miscellaneous costs, by total refining throughput. 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. (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. 40 (5) The profitability of our Wyoming refinery is heavily influenced by crack spreads in nearby markets. We believe the Wyoming 3-2-1 Index is the most representative market indicator for our operations in Wyoming. The Wyoming 3-2-1 Index is computed by taking two parts gasoline and one part distillates (ULSD) as created from three barrels of West Texas Intermediate Crude Oil (“WTI”). Pricing is based 50% on applicable product pricing in Rapid City, South Dakota, and 50% on applicable product pricing in Denver, Colorado. Below is a summary of key operating statistics for the retail segment for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, 2022 2021 2020 Retail Segment Retail sales volumes (thousands of gallons) 105,456 109,150 102,798 Non-GAAP Performance Measures Management uses certain financial measures to evaluate our operating performance that are considered non-GAAP financial measures. 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 operating income (loss) excluding: • operating expense (excluding depreciation); • depreciation and amortization (“D&A”); • impairment expense; • loss (gain) on sale of assets, net; • inventory valuation adjustment (which adjusts for timing differences to reflect the economics of our inventory financing agreements, including lower of cost or net realizable value adjustments, the impact of the embedded derivative repurchase or terminal obligations, contango (gains) and backwardation losses associated with our Washington inventory and intermediation obligation, and purchase price allocation adjustments); • LIFO layer liquidation impacts associated with our Washington inventory; • Renewable Identification Numbers (“RINs”) 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); and 41 • 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 $ 401,901 $ 54,049 $ 49,238 Operating expense (excluding depreciation) 245,992 14,988 81,229 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 mark-to-market adjustments 105,760 — — Unrealized loss on derivatives 9,336 — — Adjusted Gross Margin (1) $ 812,750 $ 89,363 $ 141,494 Year ended December 31, 2021 Refining Logistics Retail Operating income (loss) $ (88,799) $ 51,159 $ 81,249 Operating expense (excluding depreciation) 213,102 14,722 71,845 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 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 (loss) $ (331,826) $ 35,044 $ 24,211 Operating expense (excluding depreciation) 199,738 13,581 64,108 Depreciation and amortization 53,930 21,899 10,692 Impairment expense 55,989 — 29,817 Inventory valuation adjustment 9,994 — — RINs mark-to-market adjustments 81,709 — — Unrealized gain on derivatives (4,804) — — Adjusted Gross Margin (1) $ 64,730 $ 70,524 $ 128,828 ________________________________________ (1) For the years ended December 31, 2022, 2021 and 2020, there was no LIFO liquidation adjustment. 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; 42 • 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; and • Par’s share of Laramie Energy’s unrealized loss (gain) on derivatives. Adjusted EBITDA is defined as Adjusted Net Income (Loss) excluding: • D&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) 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): Year Ended December 31, 2022 2021 2020 Net income (loss) $ 364,189 $ (81,297) $ (409,086) Inventory valuation adjustment (15,712) 31,841 9,994 RINs mark-to-market adjustments 105,760 66,350 81,709 Unrealized loss (gain) on derivatives 9,336 1,517 (4,804) Acquisition and integration costs 3,663 87 614 Debt extinguishment and commitment costs 5,329 8,144 — Changes in valuation allowance and other deferred tax items (1) — — (20,896) Change in value of common stock warrants — — (4,270) Severance costs 2,272 84 512 Impairment expense — 1,838 85,806 Impairment of Investment in Laramie Energy, LLC (2) — — 45,294 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 and amortization 99,769 94,241 90,036 Interest expense and financing costs, net 68,288 66,493 70,222 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 Adjusted EBITDA $ 643,435 $ 125,622 $ (53,082) 43 ________________________________________________________ (1) Includes releases of our valuation allowance associated with business combinations and changes in deferred tax assets and liabilities that are not offset by a change in the valuation allowance. These tax benefits are included in Income tax expense (benefit) on our consolidated statements of operations. (2) Includes our share of Laramie Energy’s unrealized loss (gain) on derivatives, impairment losses on our investment in Laramie Energy, and our share of Laramie Energy’s asset impairment losses in excess of our basis difference. These impairment losses and our share of Laramie Energy’s unrealized loss (gain) on derivatives are included in Equity earnings (losses) from Laramie Energy, LLC on our consolidated statements of operations. (3) For the years ended December 31, 2022, 2021, and 2020, there was no LIFO liquidation adjustment or change in value of contingent consideration. Discussion of Operating Income (Loss) by Segment Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Refining. 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. Logistics. 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. Retail. 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 Refining. Operating loss for our refining segment was $88.8 million for the year ended December 31, 2021, an improvement of $243.0 million compared to operating loss of $331.8 million for the year ended December 31, 2020. The increase in profitability was primarily driven by favorable realized product crack spreads across all our refineries, favorable purchased product and feedstock costs at our Hawaii refinery, favorable derivative costs, and a 28% increase in refining sales volume at our Wyoming refinery, partially offset by higher inventory financing costs related to the rising cost of crude oil. Other factors impacting our results period over period include asset impairment charges of $1.8 million in 2021 from discontinued capital projects as compared to our 2020 goodwill impairment of $38.1 million and asset impairment charges of $17.9 million, and a 2021 gain on sale of assets of $19.7 million primarily related to the Sale-Leaseback Transactions we closed in the first quarter of 2021. Logistics. 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. Retail. 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, 44 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 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Refining . 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. Logistics. 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. Retail. 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 Refining . 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. Adjusted Gross Margin for the Hawaii refinery improved from $(1.31) per barrel in 2020 to $4.56 per barrel in 2021 primarily due to favorable product crack spreads and feedstock, purchased product, and derivative costs. Adjusted Gross Margin for the Wyoming refinery increased by $7.50 per barrel primarily due to favorable product crack spreads and a 28% increase in sales volumes. Adjusted Gross Margin for the Washington refinery decreased by $1.69 per barrel primarily due to higher inventory financing and feedstock costs, partially offset by favorable realized product crack spreads and lower logistics costs. Logistics. 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 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. Retail. 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. 45 Discussion of Consolidated Results Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Revenues. For the year ended December 31, 2022, revenues were $7.3 billion, a $2.6 billion increase compared to $4.7 billion for the year ended December 31, 2021. 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. 46 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 Revenues. For the year ended December 31, 2021, revenues were $4.7 billion, a $1.6 billion increase compared to $3.1 billion for the year ended December 31, 2020. The increase was primarily the result of an increase of $1.5 billion in third-party revenues at our refining segment primarily as a result of increases in Brent and WTI crude oil prices. Brent crude oil prices recovered from COVID-19-related lows, averaging $70.95 per barrel for the year ended December 31, 2021 compared to $43.21 per barrel for the year ended December 31, 2020, and WTI crude oil prices averaged $68.11 per barrel during the year ended December 31, 2021 compared to $39.65 in the year ended December 31, 2020. Other factors contributing to the increase in revenues at our refining segment include a 28% increase in refining sales volume at our Wyoming refinery and improved realized product crack spreads across all our refineries. Revenues in our retail segment increased $92.7 million primarily due to a 23% increase in fuel prices and a 6% increase in sales volume. Cost of Revenues (Excluding Depreciation). For the year ended December 31, 2021, cost of revenues (excluding depreciation) was $4.3 billion, a $1.4 billion increase compared to $2.9 billion for the year ended December 31, 2020. The increase was primarily due to increases in Brent and WTI crude oil prices and refining sales volumes at our Wyoming refinery as discussed above, higher inventory financing costs, and 6% higher sales volumes at our Retail segment, partially offset by favorable purchased product and feedstock costs at our Hawaii refinery and favorable derivative costs. Operating Expense (Excluding Depreciation). For the year ended December 31, 2021, operating expense (excluding depreciation) was approximately $299.7 million, an increase of $22.3 million compared to $277.4 million for the year ended December 31, 2020. The increase was primarily due to higher utilities and maintenance expenses at our Hawaii refinery and increased rent expenses driven by new leases from the Sale-Leaseback Transactions we completed in the first quarter of 2021. Depreciation 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. Impairment Expense. During the year ended December 31, 2021, we recorded asset impairment charges of $1.8 million primarily related to discontinued capital projects. During the year ended December 31, 2020, we recorded goodwill and asset impairment charges totaling $85.8 million related to our Refining and Retail segments. Please read Note 10—Goodwill and Intangible Assets and Note 8—Property, Plant, and Equipment and Impairment of Long-Lived Assets to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on our 2020 goodwill impairment and our 2021 and 2020 asset impairment charges, respectively. Gain on Sale of Assets, Net. For the year ended December 31, 2021, the gain on sale of assets, net was approximately $64.7 million and primarily related to the gain recognized as a result of the Sale-Leaseback Transactions we closed on February 23 and March 12, 2021. Please read Note 16—Leases to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on the Sale-Leaseback Transactions. No such transaction occurred during the year ended December 31, 2020. 47 General and Administrative Expense (Excluding Depreciation). For the year ended December 31, 2021, general and administrative expense (excluding depreciation) was approximately $48.1 million, an increase of $6.8 million compared to $41.3 million for the year ended December 31, 2020. The increase was primarily due to higher employee costs, an increase in the use of outside services, and higher information technology infrastructure costs. Interest Expense and Financing Costs, Net . For the year ended December 31, 2021, our interest expense and financing costs were approximately $66.5 million, a decrease of $3.7 million compared to $70.2 million for the year ended December 31, 2020. The decrease was primarily due to lower outstanding debt balances driven by the maturity of our outstanding 5.00% Convertible Senior Notes in June 2021, the repayment of the PHL, Mid Pac, and Retail Property Term Loans and interest rate swap related to the Retail Property Term Loan in the first quarter of 2021, and quarterly principal payments on our Term Loan B Facility. These decreases were partially offset by higher interest expense related to the 12.875% Senior Secured Notes issued in June 2020 and an increase of $1.1 million related to increased borrowings under our inventory financing agreements. Please read Note 11—Inventory Financing Agreements and Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on our inventory financing and indebtedness, respectively. Change in Value of Common Stock Warrants . For the year ended December 31, 2020, the change in value of common stock warrants resulted in a gain of $4.3 million. During January and March 2020, one of our stockholders and its affiliates exercised the remaining 354,350 common stock warrants in exchange for 350,542 shares of common stock. We estimated the fair value of our outstanding common stock warrants and the income recognized upon exercise using the difference between the strike price of the warrant and the market price of our common stock. During the three months ended March 31, 2020, our stock price decreased from $23.24 per share on December 31, 2019 to $7.10 per share on March 31, 2020. During the year ended December 31, 2021, there were no common stock warrants outstanding. Debt extinguishment and commitment costs. For the year ended December 31, 2021, our debt extinguishment and commitment costs were approximately $8.1 million and primarily represent $6.6 million in extinguishment costs associated with the early repayment of a portion of the outstanding 12.875% Senior Secured Notes on June 14, 2021 and $1.4 million in extinguishment costs associated with the early repayment of the Retail Property Term Loan on February 23, 2021. Please read Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion. There were no debt extinguishment and commitment costs for the year ended December 31, 2020. Gain on curtailment of pension obligation. During the year ended December 31, 2021, we recorded a gain on curtailment of pension obligation of $2.0 million related to the amendment to the Wyoming Refining defined benefit plan. Please read Note 19—Benefit Plans to our consolidated financial statements under Item 8 of this Form 10-K for further discussion on the gain on curtailment of pension obligation. There was no gain on curtailment of pension obligation for the year ended December 31, 2020. Equity Earnings (Losses) from Laramie Energy, LLC . For the year ended December 31, 2020, equity losses from Laramie Energy were approximately $46.9 million. During the year ended December 31, 2020, we recorded an other-than-temporary impairment charge of $45.3 million related to our investment in Laramie Energy. As of June 30, 2020, we discontinued the application of the equity method of accounting for our investment in Laramie Energy because the book value of such investment has been reduced to zero. As such, there were no earnings or losses from Laramie Energy recorded during the year ended December 31, 2021. Please read Note 3—Investment in Laramie Energy, LLC to our consolidated financial statements under Item 8 of this Form 10-K for more information. Income Taxes. For the year ended December 31, 2021, we recorded an income tax expense of $1.0 million primarily driven by foreign withholding taxes. For the year ended December 31, 2020, we recorded an income tax benefit of $20.7 million primarily driven by an increase in our net operating loss carryforwards that do not expire and the change in our indefinitely-lived goodwill due to the impairments. Condensed Consolidating Financial Information On December 21, 2017, Par Petroleum, LLC (the “Issuer”) issued its 7.75% Senior Secured Notes due 2025 in a private offering under Rule 144A and Regulation S of the Securities Act. On January 11, 2019, the Issuers (defined below) entered into a term loan and guaranty agreement with Goldman Sachs Bank USA, as administrative agent, and the lenders party thereto with respect to a $250.0 million term loan (the “Term Loan B”). On June 5, 2020, the Issuers issued their 12.875% Senior Secured Notes due 2026 in a private offering under Rule 144A and Regulation S of the Securities Act. The 7.75% Senior Secured Notes, the Term Loan B, and the 12.875% Senior Secured Notes were co-issued by Par Petroleum Finance Corp. (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 48 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.). The following supplemental condensed consolidating financial information reflects (i) the Parent’s separate accounts, (ii) Par Petroleum, LLC and its consolidated subsidiaries’ accounts (which are all guarantors of the 7.75% Senior Secured Notes, Term Loan B, and 12.875% Senior Secured Notes), (iii) the accounts of subsidiaries of the Parent that are not guarantors of the 7.75% Senior Secured Notes, Term Loan B, or 12.875% Senior Secured Notes and consolidating adjustments and eliminations, and (iv) the Parent’s consolidated accounts for the dates and periods indicated. For purposes of the following condensed consolidating information, the Parent’s investment in its subsidiaries is accounted for under the equity method of accounting (dollar amounts in thousands). 49 As of December 31, 2022 Parent Guarantor Issuer and Subsidiaries Non-Guarantor Subsidiaries and Eliminations Par Pacific Holdings, Inc. and Subsidiaries ASSETS Current assets Cash and cash equivalents $ 2,547 $ 488,350 $ 28 $ 490,925 Restricted cash 331 3,670 — 4,001 Trade accounts receivable — 252,816 69 252,885 Inventories — 1,041,983 — 1,041,983 Prepaid and other current assets 2,229 89,883 (69) 92,043 Due from related parties 229,431 — (229,431) — Total current assets 234,538 1,876,702 (229,403) 1,881,837 Property, plant, and equipment Property, plant, and equipment 19,865 1,200,747 3,955 1,224,567 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 Long-term assets Operating lease right-of-use (“ROU”) assets 2,649 348,112 — 350,761 Investment in subsidiaries 487,943 — (487,943) — Intangible assets, net — 13,577 — 13,577 Goodwill — 126,727 2,598 129,325 Other long-term assets 723 72,721 (4,131) 69,313 Total assets $ 730,751 $ 3,267,943 $ (718,047) $ 3,280,647 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current maturities of long-term debt $ — $ 10,956 $ — $ 10,956 Obligations under inventory financing agreements — 893,065 — 893,065 Accounts payable 4,176 147,219 — 151,395 Accrued taxes 47 32,052 — 32,099 Operating lease liabilities 787 65,294 — 66,081 Other accrued liabilities 511 639,396 587 640,494 Due to related parties 77,420 118,139 (195,559) — Total current liabilities 82,941 1,906,121 (194,972) 1,794,090 Long-term liabilities Long-term debt, net of current maturities — 494,576 — 494,576 Finance lease liabilities — 10,710 (4,399) 6,311 Operating lease liabilities 3,273 289,428 — 292,701 Other liabilities — 46,922 1,510 48,432 Total liabilities 86,214 2,747,757 (197,861) 2,636,110 Commitments and contingencies Stockholders’ equity Preferred stock — — — — Common stock 604 — — 604 Additional paid-in capital 836,491 409,686 (409,686) 836,491 Accumulated earnings (deficit) (200,687) 104,479 (104,479) (200,687) Accumulated other comprehensive income (loss) 8,129 6,021 (6,021) 8,129 Total stockholders’ equity 644,537 520,186 (520,186) 644,537 Total liabilities and stockholders’ equity $ 730,751 $ 3,267,943 $ (718,047) $ 3,280,647 50 As of December 31, 2021 Parent Guarantor Issuer and Subsidiaries Non-Guarantor Subsidiaries and Eliminations Par Pacific Holdings, Inc. and Subsidiaries ASSETS Current assets Cash and cash equivalents $ 4,086 $ 108,105 $ 30 $ 112,221 Restricted cash 330 3,670 — 4,000 Trade accounts receivable — 195,104 4 195,108 Inventories — 790,317 — 790,317 Prepaid and other current assets 15,664 12,864 (3) 28,525 Due from related parties 94,676 — (94,676) — Total current assets 114,756 1,110,060 (94,645) 1,130,171 Property, plant, and equipment Property, plant, and equipment 19,535 1,156,906 3,956 1,180,397 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 Long-term assets Operating lease right-of-use (“ROU”) assets 3,280 380,544 — 383,824 Investment in subsidiaries 207,483 — (207,483) — Intangible assets, net — 16,234 — 16,234 Goodwill — 124,664 2,598 127,262 Other long-term assets 724 57,382 (1,851) 56,255 Total assets $ 331,909 $ 2,538,699 $ (300,357) $ 2,570,251 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current maturities of long-term debt $ — $ 10,841 $ — $ 10,841 Obligations under inventory financing agreements — 737,704 — 737,704 Accounts payable 1,386 151,676 1,481 154,543 Accrued taxes 48 28,593 — 28,641 Operating lease liabilities 608 53,032 — 53,640 Other accrued liabilities 9,805 360,246 373 370,424 Due to related parties 50,195 10,261 (60,456) — Total current liabilities 62,042 1,352,353 (58,602) 1,355,793 Long-term liabilities Long-term debt, net of current maturities — 553,717 — 553,717 Finance lease liabilities 17 12,192 (4,518) 7,691 Operating lease liabilities 4,150 330,944 — 335,094 Other liabilities — 63,098 (10,842) 52,256 Total liabilities 66,209 2,312,304 (73,962) 2,304,551 Commitments and contingencies Stockholders’ equity Preferred stock — — — — Common stock 602 — — 602 Additional paid-in capital 821,713 409,686 (409,686) 821,713 Accumulated earnings (deficit) (559,117) (185,096) 185,096 (559,117) Accumulated other comprehensive income (loss) 2,502 1,805 (1,805) 2,502 Total stockholders’ equity 265,700 226,395 (226,395) 265,700 Total liabilities and stockholders’ equity $ 331,909 $ 2,538,699 $ (300,357) $ 2,570,251 51 Year Ended December 31, 2022 Parent Guarantor Issuer and Subsidiaries Non-Guarantor Subsidiaries and Eliminations Par Pacific Holdings, Inc. and Subsidiaries Revenues $ — $ 7,321,656 $ 129 $ 7,321,785 Operating expenses Cost of revenues (excluding depreciation) — 6,377,494 (1,480) 6,376,014 Operating expense (excluding depreciation) — 342,209 — 342,209 Depreciation and amortization 2,131 97,448 190 99,769 Loss (gain) on sale of assets, net 27 (196) — (169) General and administrative expense (excluding depreciation) 17,882 44,514 — 62,396 Acquisition and integration costs 3,396 267 — 3,663 Total operating expenses 23,436 6,861,736 (1,290) 6,883,882 Operating income (loss) (23,436) 459,920 1,419 437,903 Other income (expense) Interest expense and financing costs, net (1) (68,655) 368 (68,288) Debt extinguishment and commitment costs — (5,329) — (5,329) Other income (expense), net (20) 634 (1) 613 Equity earnings (losses) from subsidiaries 388,008 — (388,008) — Total other income (expense), net 387,987 (73,350) (387,641) (73,004) Income (loss) before income taxes 364,551 386,570 (386,222) 364,899 Income tax benefit (expense) (1) (362) (96,995) 96,647 (710) Net income (loss) $ 364,189 $ 289,575 $ (289,575) $ 364,189 Adjusted EBITDA $ (17,551) $ 659,378 $ 1,608 $ 643,435 52 Year Ended December 31, 2021 Parent Guarantor Issuer and Subsidiaries Non-Guarantor Subsidiaries and Eliminations Par Pacific Holdings, Inc. and Subsidiaries Revenues $ — $ 4,710,039 $ 50 $ 4,710,089 Operating expenses Cost of revenues (excluding depreciation) — 4,338,474 — 4,338,474 Operating expense (excluding depreciation) — 300,386 (717) 299,669 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 Acquisition and integration costs 87 — — 87 Total operating expenses 14,989 4,756,960 (54,241) 4,717,708 Operating income (loss) (14,989) (46,921) 54,291 (7,619) Other income (expense) 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) Equity earnings (losses) from subsidiaries (63,649) — 63,649 — Total other income (expense), net (66,282) (68,924) 62,549 (72,657) Income (loss) before income taxes (81,271) (115,845) 116,840 (80,276) Income tax benefit (expense) (1) (26) 24,835 (25,830) (1,021) Net income (loss) $ (81,297) $ (91,010) $ 91,010 $ (81,297) Adjusted EBITDA $ (12,468) $ 137,323 $ 767 $ 125,622 53 Year Ended December 31, 2020 Parent Guarantor Issuer and Subsidiaries Non-Guarantor Subsidiaries and Eliminations Par Pacific Holdings, Inc. and Subsidiaries Revenues $ — $ 3,124,870 $ — $ 3,124,870 Operating expenses Cost of revenues (excluding depreciation) — 2,947,697 — 2,947,697 Operating expense (excluding depreciation) — 282,159 (4,732) 277,427 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 Acquisition and integration costs — 614 — 614 Total operating expenses 13,997 3,433,089 (4,218) 3,442,868 Operating income (loss) (13,997) (308,219) 4,218 (317,998) Other income (expense) Interest expense and financing costs, net (4,982) (61,856) (3,384) (70,222) Other income (expense), net (3) 1,052 — 1,049 Change in value of common stock warrants 4,270 — — 4,270 Equity earnings (losses) from subsidiaries (394,197) — 394,197 — Equity losses from Laramie Energy, LLC — — (46,905) (46,905) Total other income (expense), net (394,912) (60,804) 343,908 (111,808) Income (loss) before income taxes (408,909) (369,023) 348,126 (429,806) Income tax benefit (expense) (1) (177) 80,914 (60,017) 20,720 Net income (loss) $ (409,086) $ (288,109) $ 288,109 $ (409,086) Adjusted EBITDA $ (10,943) $ (46,871) $ 4,732 $ (53,082) ________________________________________________________ (1) The income tax benefit (expense) of the Parent Guarantor and Issuer and Subsidiaries is determined using the separate return method. The Non-Guarantor Subsidiaries and Eliminations column includes tax benefits recognized at the Par consolidated level that are primarily associated with changes to the consolidated valuation allowance and other deferred tax balances. 54 Non-GAAP Financial Measures Adjusted EBITDA for the supplemental consolidating condensed financial information, which is segregated at the “Parent Guarantor,” “Issuer and Subsidiaries,” and “Non-Guarantor Subsidiaries and Eliminations” levels, is calculated in the same manner as for the Par Pacific Holdings, Inc. Adjusted EBITDA calculations. See “Results of Operations — Non-GAAP Performance Measures — Adjusted Net Income (Loss) and Adjusted EBITDA” above. The following tables present a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, net income (loss), on a historical basis for the periods indicated (in thousands): Year Ended December 31, 2022 Parent Guarantor Issuer and Subsidiaries Non-Guarantor Subsidiaries and Eliminations Par Pacific Holdings, Inc. and Subsidiaries Net income (loss) $ 364,189 $ 289,575 $ (289,575) $ 364,189 Inventory valuation adjustment — (15,712) — (15,712) RINs mark-to-market adjustments — 105,760 — 105,760 Unrealized loss on derivatives — 9,336 — 9,336 Acquisition and integration costs 3,396 267 — 3,663 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 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 — Income tax expense (benefit) 362 96,995 (96,647) 710 Adjusted EBITDA (3) $ (17,551) $ 659,378 $ 1,608 $ 643,435 55 Year Ended December 31, 2021 Parent Guarantor Issuer and Subsidiaries Non-Guarantor Subsidiaries and Eliminations Par Pacific Holdings, Inc. and Subsidiaries Net income (loss) $ (81,297) $ (91,010) $ 91,010 $ (81,297) Inventory valuation adjustment — 31,841 — 31,841 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) — — — — Change in value of common stock warrants — — — — Severance costs — 84 — 84 Impairment expense — 1,838 — 1,838 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 (earnings) from Laramie Energy, LLC, excluding Par’s share of unrealized loss (gain) on derivatives — — — — Equity losses (income) from subsidiaries 63,649 — (63,649) — Income tax expense (benefit) 26 (24,835) 25,830 1,021 Adjusted EBITDA (3) $ (12,468) $ 137,323 $ 767 $ 125,622 56 Year Ended December 31, 2020 Parent Guarantor Issuer and Subsidiaries Non-Guarantor Subsidiaries and Eliminations Par Pacific Holdings, Inc. and Subsidiaries Net income (loss) $ (409,086) $ (288,109) $ 288,109 $ (409,086) Inventory valuation adjustment — 9,994 — 9,994 RINs mark-to-market adjustments — 81,709 — 81,709 Unrealized gain on derivatives — (4,804) — (4,804) Acquisition and integration costs — 614 — 614 Debt extinguishment and commitment costs — — — — Changes in valuation allowance and other deferred tax items (1) — — (20,896) (20,896) Change in value of common stock warrants (4,270) — — (4,270) 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) 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 Equity losses from Laramie Energy, LLC, excluding Par’s share of unrealized gain on derivatives and impairment losses — — 2,721 2,721 Equity losses (income) from subsidiaries 394,197 — (394,197) — Income tax expense (benefit) 177 (80,914) 80,913 176 Adjusted EBITDA (3) $ (10,943) $ (46,871) $ 4,732 $ (53,082) ________________________________________________________ (1) Includes increases in (releases of) our valuation allowance associated with business combinations and changes in deferred tax assets and liabilities that are not offset by a change in the valuation allowance. These tax expenses (benefits) are included in Income tax expense (benefit) on our consolidated statements of operations. (2) Includes impairment losses on our investment in Laramie Energy and our share of Laramie Energy’s asset impairment losses in excess of our basis difference. 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) There was no LIFO liquidation adjustment or change in value of contingent consideration for the years ended December 31, 2022, 2021, and 2020. Liquidity and Capital Resources Our liquidity and capital requirements are primarily a function of our debt maturities and debt service requirements and contractual obligations, capital expenditures, turnaround outlays, and working capital needs. Examples of working capital needs include purchases and sales of commodities and associated margin and collateral requirements, facility maintenance costs, and other costs such as payroll. 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, 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. Aron Discretionary Draw Facility, the ABL Credit Facility, the MLC receivable advances, and cash on hand of $490.9 million. In addition, we have the Supply and Offtake Agreement with J. Aron and the Washington Refinery Intermediation Agreement, which are used to finance the majority of the inventory at our Hawaii and Washington refineries, respectively. Generally, the primary uses of our capital resources have been in the operations of our refining and retail segments, payments related to acquisitions, and to repay or refinance indebtedness. 57 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 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. In the first quarter of 2021, we closed on the sale and leaseback of twenty-two (22) of our retail properties in Hawaii for an aggregate cash purchase price of approximately $112.8 million net of transaction fees (the “Sale-Leaseback Transactions”). We used approximately $53.1 million of the net cash proceeds to repay the certain financing arrangements which were related to certain of the retail properties and the remainder for general corporate purposes. Please read Note 16—Leases to our consolidated financial statements under Item 8 of this Form 10-K for additional discussion on the Sale-Leaseback Transactions. On March 19, 2021, we sold 5.75 million shares of common stock in an underwritten public offering at a public offering price of $16.00 per share, resulting in net proceeds of approximately $87.2 million (the “Equity Offering”), after deducting underwriting discounts and commissions and offering expenses. We used the net proceeds from the Equity Offering to repay the remaining $48.7 million in aggregate principal amount of 5.00% Convertible Senior Notes at maturity in June 2021 and $36.8 million in aggregate principal amount of 12.875% Senior Secured Notes, and the remainder for other general corporate purposes, including capital expenditures, and funding working capital. Please read Note 18—Stockholders’ Equity to our consolidated financial statements under Item 8 of this Form 10-K for additional discussion on the Equity Offering. During the years ended December 31, 2022, 2021, and 2020, we had significant activity related to our inventory financing and debt agreements. Please read Note 11—Inventory Financing Agreements and Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion of significant activity related to our inventory financing and debt agreements, respectively. We may from time to time seek to retire or purchase our 7.75% Senior Secured Notes, our 12.875% Senior Secured Notes, or our common stock through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. 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 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). Cash Flows The following table summarizes cash activities for the years ended December 31, 2022, 2021, and 2020 (in thousands): Years Ended December 31, 2022 2021 2020 Net cash provided by (used in) operating activities $ 452,606 $ (27,622) $ (37,214) Net cash provided by (used in) investing activities (87,308) 74,628 (63,464) 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; and • debt commitment and extinguishment costs of $5.3 million. 58 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; and • 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; and • 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; and • $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; and • 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. 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 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. 59 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. Cash Requirements We have various cash requirements stemming from investment strategies, contractual obligations, and financial commitments in the normal course of our operations and financing activities. Contractual obligations include future cash payments required under existing contractual arrangements, such as debt and lease agreements. These cash requirements and obligations may result from both general financing activities and from commercial arrangements that are directly related to our operating activities. We also continue to seek strategic investments in business opportunities, however the amount and timing of those investments are not predictable. Our material cash requirements as of December 31, 2022 include: Debt and Interest Payments. Current and long-term debt includes the scheduled principal payments related to our outstanding debt obligations and letters of credit. Our estimated interest payments due for 2023 are $44.3 million and our total estimated undiscounted future interest payments will be $133.3 million on the debt obligations held as of December 31, 2022 and using interest rates in effect as of December 31, 2022. Please read Note 13—Debt to our consolidated financial statements under Item 8 of this Form 10-K for further discussion. Capital Expenditures and Turnaround Costs. 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 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. Operating lease liabilities primarily include obligations associated with the lease of land, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products. Please read Note 16—Leases to our consolidated financial statements under Item 8 of this Form 10-K for further discussion. Finance Lease Liabilities. Finance lease liabilities primarily include obligations associated with the lease of retail facilities and vehicles. Please read Note 16—Leases to our consolidated financial statements under Item 8 of this Form 10-K for further discussion. Purchase Commitments. Purchase commitments primarily consist of contracts executed as of December 31, 2022 for the purchase of crude oil for use at our refineries that are scheduled for delivery in 2023. As of December 31, 2022, we have material purchase commitments of $4.3 billion, with required cash outlays primarily expected in the next twelve months. Supply and Offtake Agreement. On June 1, 2021, we and J. Aron entered into the second amended and restated supply and offtake agreement which expires on May 31, 2024, with a one-year extension option. We and J. 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 . 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 60 of 2023. Please read Note 4—Acquisitions to our consolidated financial statements under Item 8 of this Form 10-K for more information. Environmental Matters. Our operations are subject to extensive and periodically-changing federal, state, and local environmental laws and regulations including but not limited to air emissions, wastewater discharges, and solid and hazardous waste management activities. Additionally, we have asset retirement obligations in the period in which we have a legal obligation, whether by government or regulatory action or contractual arrangement, to incur these costs and can make a reasonable estimate of the fair value of the liability. Please read Note 9—Asset Retirement Obligations and Note 17—Commitments and Contingencies to our consolidated financial statements under Item 8 of this Form 10-K for more information. Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations were based on the consolidated financial statements, which have been prepared in accordance with U.S. GAAP. 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 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. We analyze our estimates on a periodic basis, including those related to fair value, impairments, natural gas and crude oil reserves, bad debts, natural gas and oil properties, income taxes, derivatives, contingencies, and litigation and base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Inventory and Obligations Under Inventory Financing Agreements Commodity inventories, excluding commodity inventories at the Washington refinery, are stated at the lower of cost and net realizable value using the FIFO accounting method. Commodity inventories at the Washington refinery are stated at the lower of cost and net realizable value using the LIFO inventory accounting method. We value merchandise along with spare parts, materials, and supplies at average cost. Estimating the net realizable value of our inventory requires management to make assumptions about the timing of sales and the expected proceeds that will be realized for these sales. Please read Note 6—Inventories to our consolidated financial statements under Item 8 of this Form 10-K for additional information. All of the crude oil utilized at the Hawaii refinery is financed by J. Aron under procurement contracts. The crude oil remains in the legal title of J. Aron and is stored in our storage tanks governed by a storage agreement. Legal title to the crude oil passes to us at the tank outlet. After processing, J. Aron takes title to the refined products stored in our storage tanks until they are sold to our retail locations or to third parties. We record the inventory owned by J. Aron on our behalf as inventory with a corresponding accrued liability on our balance sheet because we maintain the risk of loss until the refined products are sold to third parties and we have an obligation to repurchase it. 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. We are a party to the Washington Refinery Intermediation Agreement with MLC. Under this arrangement, U.S. Oil purchases crude oil supplied from third-party suppliers and MLC provides credit support for certain of these purchases. U.S. Oil holds title to all crude oil and refined products inventories at all times and pledges such inventories, together with all receivables arising from the sales of these inventories, exclusively to MLC. The valuation of our terminal obligation requires that we make estimates of the prices and differentials for our then monthly forward purchase obligations. Please read Note 11—Inventory Financing Agreements to our consolidated financial statements under Item 8 of this Form 10-K for additional information regarding both our Hawaii and Washington inventory financing agreements. Fair Value Measurements We measure certain assets and liabilities at their fair market value. Assets and liabilities measured at fair value on a recurring basis include derivative instruments and environmental credit obligations. We also measure certain assets and liabilities at fair value on a nonrecurring basis when specific triggering events occur, such as business combinations and events which indicate that a reporting unit’s carrying value exceeds its estimated fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. In estimating fair value, we use discounted cash flow projections, recent comparable market transactions, if available, or quoted 61 prices. We consider assumptions that third parties would make in estimating fair value, including the highest and best use of the asset. The assumptions used by another party could differ significantly from our assumptions. We classify fair value balances based on the classification of the inputs used to calculate the fair value of a transaction. The inputs used to measure fair value have been placed in a hierarchy based on priority. The hierarchy gives the highest priority to unadjusted, readily observable quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Please read Note 15—Fair Value Measurements to our consolidated financial statements under Item 8 of this Form 10-K for additional information. Business Combinations We recognize assets acquired and liabilities assumed in business combinations separately from goodwill at their estimated fair values as of the date of acquisition. Significant judgment is required in estimating the fair value of assets acquired. We obtain the assistance of third-party valuation specialists in estimating fair values of tangible and intangible assets based on available historical information and on expectations and assumptions about the future, considering the perspectives of marketplace participants. These valuation methods require management to make estimates and assumptions regarding characteristics of the acquired property and future revenues and expenses. Changes in these estimates and assumptions would result in different amounts allocated to the related assets and liabilities. The measurement period may be up to one year from the acquisition date; we may record adjustments to the preliminary purchase price allocation during this time, concluding at the end of the one year period or final determination of the values of consideration transferred and assets and liabilities assumed, whichever comes first. Subsequent adjustments, if any, are recorded to the consolidated statement of operations. Please read Note 4—Acquisitions and Note 15—Fair Value Measurements to our consolidated financial statements under Item 8 of this Form 10-K for further information. Impairment of Goodwill and Long-lived Assets We assess the recoverability of the carrying value of goodwill during the fourth quarter of each year or whenever events or changes in circumstances indicate that the carrying amount of the goodwill of a reporting unit may not be fully recoverable. We first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required. Under the quantitative test, we compare the carrying value of the net assets of the reporting unit to the estimated fair value of the reporting unit. If the carrying value exceeds the estimated fair value of the reporting unit, an impairment loss is recorded. The fair value of a reporting unit is determined using the income approach and the market approach. Under the income approach, we estimate the present value of expected future cash flows using a market participant discount rate. 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. Please read Note 10—Goodwill and Intangible Assets to our consolidated financial statements under Item 8 of this Form 10-K for further information, including the goodwill impairment we recorded in the first quarter of 2020. We review property, plant, and equipment, operating leases, and other long-lived assets whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. We use a cash flows model to estimate value because there is usually a lack of quoted market prices for long-lived assets. Future cash flows estimates used for impairment reviews are based on assessments requiring judgment, including future production volumes, commodity prices, operating costs, margins, discount rates, expected capital expenditures, and other factors based on all available information available as of the date of the review. Impairment is indicated when the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying value. If this occurs, an impairment loss is recognized for the difference between the fair value and carrying value. The fair value of long-lived assets is determined using the income approach. Please read Note 8—Property, Plant, and Equipment and Impairment of Long-Lived Assets to our consolidated financial statements under Item 8 of this Form 10-K for further information, including the asset impairment we recorded in the first quarter of 2020. Environmental Matters and Asset Retirement Obligations 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 62 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. Estimating the cost and timing of future remedial efforts is difficult and related technologies, costs, regulatory and other compliance considerations, timing, discount rates, and other inputs into the valuations are subject to change. Please read Note 2—Summary of Significant Accounting Policies, “Asset Retirement Obligations,” to our consolidated financial statements under Item 8 of this Form 10-K for further information. Income Taxes 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 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. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. These liabilities are recorded based on our assessment of existing tax laws and regulations. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences become deductible and may vary from our estimates for a number of reasons, including different interpretations of tax laws and regulations. New tax laws and regulations, and changes to existing tax laws and regulations, are proposed and promulgated continuously. The implementation of future tax laws and regulatory initiatives, as well as future interpretations on historical tax laws and regulations, could result in increased tax liabilities that cannot be predicted at this time. Please read Note 2—Summary of Significant Accounting Policies, “Income Taxes,” to our consolidated financial statements under Item 8 of this Form 10-K for further information. Based upon the level of historical taxable income and projections for future results of operations over the periods in which the deferred tax assets are deductible, among other factors, management concluded that we did not meet the “more likely than not” requirement in order to recognize deferred tax assets and therefore, a valuation allowance has been recorded for substantially all of our net deferred tax assets at December 31, 2022 and 2021.