Item 1. Financial Statements
Item 1. FINANCIAL STATEMENTS
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
March 31, 2023 December 31, 2022
ASSETS
Current assets
Cash and cash equivalents $ 661,316 $ 490,925
Restricted cash 4,002 4,001
Total cash, cash equivalents, and restricted cash 665,318 494,926
Trade accounts receivable, net of allowances of $ 0.3 million and $ 0.3 million at March 31, 2023 and December 31, 2022, respectively
277,700 252,885
Inventories 929,574 1,041,983
Prepaid and other current assets 76,127 92,043
Total current assets 1,948,719 1,881,837
Property, plant, and equipment
Property, plant, and equipment 1,237,640 1,224,567
Less accumulated depreciation and amortization ( 406,121 ) ( 388,733 )
Property, plant, and equipment, net 831,519 835,834
Long-term assets
Operating lease right-of-use assets 341,292 350,761
Intangible assets, net 12,912 13,577
Goodwill 129,275 129,325
Other long-term assets 63,715 69,313
Total assets $ 3,327,432 $ 3,280,647
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current maturities of long-term debt $ 3,747 $ 10,956
Obligations under inventory financing agreements 871,562 893,065
Accounts payable 188,086 151,395
Accrued taxes 32,281 32,099
Operating lease liabilities 66,529 66,081
Other accrued liabilities 410,150 640,494
Total current liabilities 1,572,355 1,794,090
Long-term liabilities
Long-term debt, net of current maturities 530,574 494,576
Finance lease liabilities 6,670 6,311
Operating lease liabilities 281,471 292,701
Other liabilities 48,369 48,432
Total liabilities 2,439,439 2,636,110
Commitments and contingencies (Note 14)
Stockholders’ equity
Preferred stock, $ 0.01 par value: 3,000,000 shares authorized, none issued
— —
Common stock, $ 0.01 par value; 500,000,000 shares authorized at March 31, 2023 and December 31, 2022, 61,029,446 shares and 60,470,837 shares issued at March 31, 2023 and December 31, 2022, respectively
610 604
Additional paid-in capital 842,062 836,491
Accumulated earnings (deficit) 37,203 ( 200,687 )
Accumulated other comprehensive income 8,118 8,129
Total stockholders’ equity 887,993 644,537
Total liabilities and stockholders’ equity $ 3,327,432 $ 3,280,647
See accompanying notes to the condensed consolidated financial statements.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended
March 31,
2023 2022
Revenues $ 1,685,209 $ 1,350,293
Operating expenses
Cost of revenues (excluding depreciation) 1,289,020 1,350,249
Operating expense (excluding depreciation) 83,120 81,404
Depreciation and amortization 24,360 23,780
General and administrative expense (excluding depreciation) 19,286 15,893
Acquisition and integration costs 5,271 63
Par West redevelopment and other costs 2,750 —
Total operating expenses 1,423,807 1,471,389
Operating income (loss) 261,402 ( 121,096 )
Other income (expense)
Interest expense and financing costs, net ( 16,250 ) ( 16,394 )
Debt extinguishment and commitment costs ( 17,720 ) —
Other income (loss), net ( 35 ) 2
Equity earnings from Laramie Energy, LLC 10,706 —
Total other expense, net ( 23,299 ) ( 16,392 )
Income (loss) before income taxes 238,103 ( 137,488 )
Income tax benefit (expense) ( 213 ) 437
Net income (loss) $ 237,890 $ ( 137,051 )
Income (loss) per share
Basic $ 3.96 $ ( 2.31 )
Diluted $ 3.90 $ ( 2.31 )
Weighted-average number of shares outstanding
Basic 60,111 59,413
Diluted 61,047 59,413
See accompanying notes to the condensed consolidated financial statements.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2023 2022
Net income (loss) $ 237,890 $ ( 137,051 )
Other comprehensive income (loss):
Other post-retirement benefits loss, net of tax ( 11 ) —
Total other comprehensive income (loss), net of tax ( 11 ) —
Comprehensive income (loss) $ 237,879 $ ( 137,051 )
See accompanying notes to the condensed consolidated financial statements.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended March 31,
2023 2022
Cash flows from operating activities:
Net Income (Loss) $ 237,890 $ ( 137,051 )
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization 24,360 23,780
Debt extinguishment and commitment costs 17,720 —
Non-cash interest expense 898 1,017
Non-cash lower of cost and net realizable value adjustment — ( 463 )
Deferred taxes 67 —
Stock-based compensation 2,317 3,658
Unrealized (gain) loss on derivative contracts ( 13,670 ) 15,452
Equity earnings from Laramie Energy, LLC ( 10,706 ) —
Net changes in operating assets and liabilities:
Trade accounts receivable ( 24,906 ) ( 40,262 )
Prepaid and other assets 21,084 ( 25,233 )
Inventories 112,340 ( 236,664 )
Deferred turnaround expenditures — ( 28,929 )
Obligations under inventory financing agreements ( 43,910 ) 201,996
Accounts payable, other accrued liabilities, and operating lease ROU assets and liabilities ( 184,389 ) 215,014
Net cash provided by (used in) operating activities 139,095 ( 7,685 )
Cash flows from investing activities:
Capital expenditures ( 13,213 ) ( 16,333 )
Proceeds from sale of assets and other 50 60
Return of capital from Laramie Energy, LLC 10,706 —
Net cash used in investing activities ( 2,457 ) ( 16,273 )
Cash flows from financing activities:
Proceeds from borrowings 541,750 88,163
Repayments of borrowings ( 521,256 ) ( 70,059 )
Net borrowings on deferred payment arrangements and receivable advances 22,407 41,712
Payment of deferred loan costs ( 4,210 ) ( 817 )
Purchase of common stock for retirement ( 2,569 ) ( 6,388 )
Exercise of stock options 6,374 —
Payments for debt extinguishment and commitment costs ( 8,742 ) —
Net cash provided by financing activities 33,754 52,611
Net increase in cash, cash equivalents, and restricted cash 170,392 28,653
Cash, cash equivalents, and restricted cash at beginning of period 494,926 116,221
Cash, cash equivalents, and restricted cash at end of period $ 665,318 $ 144,874
Supplemental cash flow information:
Net cash paid for:
Interest $ ( 20,042 ) $ ( 11,085 )
Taxes ( 454 ) —
Non-cash investing and financing activities:
Accrued capital expenditures $ 4,328 $ 6,169
ROU assets obtained in exchange for new finance lease liabilities 731 594
ROU assets obtained in exchange for new operating lease liabilities 8,380 10,678
ROU assets terminated in exchange for release from finance lease liabilities — —
ROU assets terminated in exchange for release from operating lease liabilities — 1,029
See accompanying notes to the condensed consolidated financial statements.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)
Accumulated
Additional Other
Common Stock Paid-In Accumulated Comprehensive Total
Shares Amount Capital Deficit Income Equity
Balance, December 31, 2021 60,162 $ 602 $ 821,713 $ ( 559,117 ) $ 2,502 $ 265,700
Stock-based compensation 412 3 3,655 — — 3,658
Purchase of common stock for retirement ( 462 ) ( 4 ) ( 1,431 ) ( 4,955 ) — ( 6,390 )
Net loss — — — ( 137,051 ) — ( 137,051 )
Balance, March 31, 2022 60,112 $ 601 $ 823,937 $ ( 701,123 ) $ 2,502 $ 125,917
Accumulated
Additional Accumulated Other
Common Stock Paid-In (Deficit) Comprehensive Total
Shares Amount Capital Earnings Income Equity
Balance, December 31, 2022 60,471 $ 604 $ 836,491 $ ( 200,687 ) $ 8,129 $ 644,537
Stock-based compensation 340 — 2,317 — — 2,317
Purchase of common stock for retirement ( 81 ) — ( 3,114 ) — — ( 3,114 )
Exercise of stock options 300 6 6,368 — — 6,374
Other comprehensive loss — — — — ( 11 ) ( 11 )
Net income — — — 237,890 — 237,890
Balance, March 31, 2023 61,030 $ 610 $ 842,062 $ 37,203 $ 8,118 $ 887,993
See accompanying notes to the condensed consolidated financial statements.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
Note 1 — Overview
Par Pacific Holdings, Inc. and its wholly owned subsidiaries (“Par” or the “Company”) own and operate market-leading energy and infrastructure businesses. Our strategy is to acquire and develop businesses in logistically complex, niche markets. Currently, we operate in three primary business segments:
1) Refining - We own and operate three refineries in Hawaii, Wyoming, and Washington.
2) Retail - Our retail outlets in Hawaii, Washington, and Idaho sell gasoline, diesel, and retail merchandise through Hele and “76” branded sites, “nomnom” branded company-operated convenience stores, 7-Eleven operated convenience stores, other sites operated by third parties, and unattended cardlock stations.
3) Logistics - We operate an extensive multi-modal logistics network spanning the Pacific, the Northwest, and the Rocky Mountain regions to transport and store our crude oil and refined products for our refineries and transport refined products to our retail sites or third-party purchasers.
As of March 31, 2023, we owned a 46.0 % equity investment in Laramie Energy, LLC (“Laramie Energy”). Laramie Energy is focused on developing and producing natural gas in Garfield, Mesa, and Rio Blanco counties, Colorado.
Our Corporate and Other reportable segment primarily includes general and administrative costs.
Note 2— Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of Par and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain amounts previously reported in our condensed consolidated financial statements for prior periods have been reclassified to conform with the current presentation.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. The condensed consolidated financial statements contained in this report include all material adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the complete fiscal year or for any other period. The condensed consolidated balance sheet as of December 31, 2022 was derived from our audited consolidated financial statements as of that date. These condensed consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosures. Actual amounts could differ from these estimates.
Allowance for Credit Losses
We are exposed to credit losses primarily through our sales of refined products. Credit limits and/or prepayment requirements are set based on such factors as the customer’s financial results, credit rating, payment history, and industry and are reviewed annually for customers with material credit limits. Credit allowances are reviewed at least quarterly based on changes in the customer’s creditworthiness due to economic conditions, liquidity, and business strategy as publicly reported and through discussions between the customer and the Company. We establish provisions for losses on trade receivables based on the estimated credit loss we expect to incur over the life of the receivable. We did not have a material change in our allowances on trade receivables during the three months ended March 31, 2023 or 2022.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
Cost Classifications
Cost of revenues (excluding depreciation) includes the hydrocarbon-related costs of inventory sold, transportation costs of delivering product to customers, crude oil consumed in the refining process, costs to satisfy our Renewable Identification Numbers (“RINs”) obligations, and certain hydrocarbon fees and taxes. Cost of revenues (excluding depreciation) also includes the unrealized gains and losses on derivatives and inventory valuation adjustments. Certain direct operating expenses related to our logistics segment are also included in Cost of revenues (excluding depreciation).
Operating expense (excluding depreciation) includes direct costs of labor, maintenance and services, energy and utility costs, property taxes, and environmental compliance costs, as well as chemicals and catalysts and other direct operating expenses.
The following table summarizes depreciation and finance lease amortization expense excluded from each line item in our condensed consolidated statements of operations (in thousands):
Three Months Ended March 31,
2023 2022
Cost of revenues $ 4,999 $ 5,052
Operating expense 12,404 12,897
General and administrative expense 502 648
Recent Accounting Pronouncements
There have been no developments to recent accounting pronouncements, including the expected dates of adoption and estimated effects on our financial condition, results of operations, and cash flows, from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 .
Note 3— Investment in Laramie Energy, LLC
As of March 31, 2023, we had a 46.0 % ownership interest in Laramie Energy. Laramie Energy is focused on developing and producing natural gas in Garfield, Mesa, and Rio Blanco counties, Colorado. The balance of our investment in Laramie Energy was zero as of March 31, 2023 and December 31, 2022.
Laramie Energy had a term loan agreement which provided a term loan secured by a lien on its natural gas and crude oil properties and related assets. Under the terms of the term loan, Laramie Energy was generally prohibited from making future cash distributions to its owners, including us, except for certain permitted tax distributions.
On February 21, 2023, Laramie Energy entered into a new term loan agreement which provides a $ 205 million first lien term loan facility with $ 160.0 million funded at closing and an optional $ 45 million delayed draw commitment, subject to certain terms and conditions. Laramie Energy used the proceeds from the term loan to repay the then-outstanding balance of $ 76.3 million on its prior term loan, including accrued interest and prepayment penalties, and fully redeem preferred equity of $ 73.5 million. After deducting transaction costs, net proceeds were $ 4.8 million. Under the terms of the new term loan, Laramie is permitted to make future cash distributions to its owners, including us, subject to certain restrictions. Laramie Energy’s term loan matures on February 21, 2027. As of March 31, 2023, the term loan had an outstanding balance of $ 160.0 million.
On March 1, 2023, pursuant to its new term loan agreement, Laramie Energy made a one-time cash distribution to its owners, including us, based on ownership percentage. Our share of this distribution was $ 10.7 million, which was reflected as Return of capital from Laramie Energy, LLC on our condensed consolidated statements of cash flows. We recorded the cash received as Equity earnings from Laramie Energy, LLC on our condensed consolidated statements of operations because the carrying value of our investment in Laramie Energy was zero at the time of such distribution.
Effective February 21, 2023, and concurrent with the new term loan agreement noted above, we resumed the application of equity method accounting with respect to our investment in Laramie Energy. At March 31, 2023, our equity in the underlying net assets of Laramie Energy exceeded the carrying value of our investment by approximately $ 76.4 million. This difference arose primarily due to other-than-temporary impairments of our equity investment in Laramie Energy.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
Note 4— Acquisitions
Billings Acquisition
On October 20, 2022, we and our subsidiaries Par Montana, LLC (“Par Montana”) and Par Montana Holdings, LLC (“Par Montana Holdings” and, together with Par Montana, the “Purchasers”) entered into an equity and asset purchase agreement (the “Purchase Agreement”) with Exxon Mobil Corporation, ExxonMobil Oil Corporation, and ExxonMobil Pipeline Company LLC (collectively, the “Sellers”) to purchase (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 for a base purchase price of $ 310.0 million plus the value of hydrocarbon inventory and adjusted working capital at closing (collectively, the “Billings Acquisition”). The closing of the Billings Acquisition is subject to certain customary closing conditions and is expected to occur in the second quarter of 2023. Upon execution of the Purchase Agreement, we made a cash deposit of $ 30.0 million, recorded in Prepaid and other current assets, which will be credited to the purchase price upon a successful closing. We guaranteed the payment and performance of the Purchasers’ obligations under the Purchase Agreement. We incurred $ 5.3 million of acquisition costs related to the Billings Acquisition for the three months ended March 31, 2023. For the three months ended March 31, 2022, we recognized immaterial costs related to the Billings Acquisition. These costs are included in Acquisition and integration costs on our condensed consolidated statements of operations.
Note 5— Revenue Recognition
As of March 31, 2023 and December 31, 2022, receivables from contracts with customers were $ 271.9 million and $ 242.5 million, respectively. Our refining segment recognizes deferred revenues when cash payments are received in advance of delivery of products to the customer. Deferred revenue was $ 22.8 million and $ 11.5 million as of March 31, 2023 and December 31, 2022, respectively. We have elected to apply a practical expedient not to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected duration of less than one year and (ii) contracts where the variable consideration has been allocated entirely to our unsatisfied performance obligation.
The following table provides information about disaggregated revenue by major product line and includes a reconciliation of the disaggregated revenues to total segment revenues (in thousands):
Three Months Ended March 31, 2023 Refining Logistics Retail
Product or service:
Gasoline $ 450,325 $ — $ 100,188
Distillates (1) 779,053 — 11,599
Other refined products (2) 385,609 — —
Merchandise — — 22,828
Transportation and terminalling services — 52,388 —
Other revenue 426 — 957
Total segment revenues (3) $ 1,615,413 $ 52,388 $ 135,572
Three Months Ended March 31, 2022 Refining Logistics Retail
Product or service:
Gasoline $ 401,109 $ — $ 89,775
Distillates (1) 588,083 — 8,510
Other refined products (2) 303,607 — —
Merchandise — — 20,815
Transportation and terminalling services — 42,461 —
Other revenue 6,424 — 809
Total segment revenues (3) $ 1,299,223 $ 42,461 $ 119,909
_______________________________________________________
(1) Distillates primarily include diesel and jet fuel.
(2) Other refined products include fuel oil, gas oil, and asphalt.
(3) Refer to Note 18—Segment Information for the reconciliation of segment revenues to total consolidated revenues.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
Note 6— Inventories
Inventories at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):
Titled Inventory Supply and Offtake Agreement (1) Total
March 31, 2023
Crude oil and feedstocks $ 169,144 $ 161,261 $ 330,405
Refined products and blendstock 181,199 169,920 351,119
Warehouse stock and other (2) 248,050 — 248,050
Total $ 598,393 $ 331,181 $ 929,574
December 31, 2022
Crude oil and feedstocks $ 112,082 $ 265,536 $ 377,618
Refined products and blendstock 188,040 168,624 356,664
Warehouse stock and other (2) 307,701 — 307,701
Total $ 607,823 $ 434,160 $ 1,041,983
________________________________________________________
(1) Please read Note 8—Inventory Financing Agreements for further information.
(2) Includes $ 193.2 million and $ 258.2 million of RINs and environmental credits, reported at the lower of cost or net realizable value, as of March 31, 2023 and December 31, 2022, respectively. RINs and environmental credit obligations of $ 346.7 million and $ 549.8 million, reported at market value, are included in Other accrued liabilities on our condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023 and December 31, 2022, there was no reserve for the lower of cost or net realizable value of inventory. As of March 31, 2023 and December 31, 2022, the excess of current replacement cost over the last-in, first-out (“LIFO”) inventory carrying value at the Washington refinery was approximately $ 37.0 million and $ 46.4 million, respectively.
Note 7— Prepaid and Other Current Assets
Prepaid and other current assets at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):
March 31, 2023 December 31, 2022
Collateral posted with broker for derivative instruments (1) $ 18,869 $ 40,788
Billings Acquisition deposit (2) 30,000 30,000
Prepaid insurance 10,528 15,639
Other 16,730 5,616
Total $ 76,127 $ 92,043
_________________________________________________________
(1) Our cash margin that is required as collateral deposits on our commodity derivatives cannot be offset against the fair value of open contracts except in the event of default. Please read Note 11—Derivatives for further information.
(2) Please read Note 4—Acquisitions for further information.
Note 8— Inventory Financing Agreements
The following table summarizes our outstanding obligations under our inventory financing agreements (in thousands):
March 31, 2023 December 31, 2022
Supply and Offtake Agreement
$ 646,536 $ 732,511
Washington Refinery Intermediation Agreement 225,026 160,554
Obligations under inventory financing agreements $ 871,562 $ 893,065
Supply and Offtake Agreement
Under the Second Amended and Restated Supply and Offtake Agreement (as amended, the “Supply and Offtake
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
Agreement”), J. Aron & Company LLC (“J. Aron”) finances the majority of the crude oil utilized at the Hawaii refinery, holds legal title to the crude oil stored in our storage tanks before processing until title passes to us at the tank outlet, and buys refined products produced at our Hawaii refinery, after which we repurchase the refined products prior to selling them to our retail locations or third parties. Under the Supply and Offtake Agreement, J. Aron may enter into agreements with third parties whereby J. Aron remits payments to these third parties for refinery procurement contracts for which we will become immediately obligated to reimburse J. Aron. The Supply and Offtake Agreement expires May 31, 2024 (as extended, the “Expiration Date”), subject to a one-year extension at the mutual agreement of the parties at least 120 days prior to the Expiration Date. The Supply and Offtake Agreement also makes available a discretionary draw facility (the “Discretionary Draw Facility”) to Par Hawaii Refining, LLC (“PHR”).
On April 25, 2022, we entered into an amendment (the “S&O Amendment”) to the Supply and Offtake Agreement which, among other things, amended the maximum commitment amount under the Discretionary Draw Facility from $ 165 million to $ 215 million. The S&O Amendment further increased the limit in the borrowing base for eligible hydrocarbon inventory from $ 82.5 million to $ 107.5 million. The S&O Amendment further requires a $ 5.0 million reserve against the borrowing base at any time more than $ 165 million is outstanding in discretionary draw advances made to PHR; the reserve may be reduced by the posting of cash collateral by PHR in accordance with the terms of the S&O Amendment.
Under the Supply and Offtake Agreement, we pay or receive certain fees from J. Aron based on changes in market prices over time. In 2021 and 2022, we entered into multiple contracts to fix certain market fees for the period from January 2022 through May 2022 for $ 8.7 million. In 2023, we did not enter into any contracts to fix market fees related to our Supply and Offtake Agreement. We had no fixed market fees due to or from J. Aron as of March 31, 2023 and December 31, 2022. The amount due to or from J. Aron was recorded as an adjustment to our Obligations under inventory financing agreements as allowed under the Supply and Offtake Agreement. We did not recognize any fixed market fees for the three months ended March 31, 2023. We recognized fixed market fees of $ 7.3 million for the three months ended March 31, 2022, which were included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations.
Washington Refinery Intermediation Agreement
The Washington Refinery Intermediation Agreement with Merrill Lynch Commodities, Inc. (“MLC”) provides a structured financing arrangement based on U.S. Oil & Refining Co. and certain affiliated entities’ crude oil and refined products inventories and associated accounts receivable. On March 9, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to advance the term expiry date from December 21, 2022 to March 31, 2023. On May 9, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to increase the maximum borrowing capacity under the MLC receivable advances from $ 90 million to $ 115 million. On August 11, 2022, we and MLC entered into an amendment to the Washington Refinery Intermediation Agreement to establish the adjusted three-month term Secured Overnight Financing Rate ("SOFR") as the benchmark rate in replacement of the London Interbank Offered Rate ("LIBOR") and revise certain other terms and conditions. On November 2, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to further extend the term through March 31, 2024 and reduce the maximum borrowing capacity to $ 110 million. On February 28, 2023, we and MLC amended the Washington Refinery Intermediation Agreement to facilitate entry into the Term Loan Credit Agreement.
The following table summarizes our outstanding borrowings, letters of credit, and contractual undertaking obligations under the intermediation agreements (in thousands):
March 31, 2023 December 31, 2022
Discretionary Draw Facility
Outstanding borrowings (1)
$ 186,965 $ 204,843
Borrowing capacity
186,965 204,843
MLC receivable advances
Outstanding borrowings (1)
96,886 56,601
Borrowing capacity
96,886 56,601
J. Aron payment undertaking obligations — —
MLC issued letters of credit 94,440 115,001
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
______________________________________________________
(1) Borrowings outstanding under the Discretionary Draw Facility and MLC receivable advances are included in Obligations under inventory financing agreements on our condensed consolidated balance sheets. Changes in the borrowings outstanding under these arrangements are included within Cash flows from financing activities on the condensed consolidated statements of cash flows.
The following table summarizes the inventory intermediation fees, which are included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations, and Interest expense and financing costs, net related to the intermediation agreements (in thousands):
Three Months Ended March 31,
2023 2022
Net fees and expenses:
Supply and Offtake Agreement
Inventory intermediation fees (1) $ 13,999 $ 10,923
Interest expense and financing costs, net 1,725 1,244
Washington Refinery Intermediation Agreement
Inventory intermediation fees $ 750 $ 750
Interest expense and financing costs, net 2,659 1,954
___________________________________________________
(1) Inventory intermediation fees under the Supply and Offtake Agreement include market structure fees of $ 2.4 million and $ 4.4 million for the three months ended March 31, 2023 and 2022, respectively.
The Supply and Offtake Agreement and the Washington Refinery Intermediation Agreement also provide us with the ability to economically hedge price risk on our inventories and crude oil purchases. Please read Note 11—Derivatives for further information.
Note 9— Other Accrued Liabilities
Other accrued liabilities at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):
March 31, 2023 December 31, 2022
Accrued payroll and other employee benefits $ 11,519 $ 27,815
Gross environmental credit obligations (1) 346,683 549,791
Other 51,948 62,888
Total $ 410,150 $ 640,494
___________________________________________________
(1) Gross environmental credit obligations are stated at market as of March 31, 2023 and December 31, 2022. Please read Note 12—Fair Value Measurements for further information. A portion of these obligations are expected to be settled with our RINs assets and other environmental credits, which are presented as Inventories on our condensed consolidated balance sheet and are stated at the lower of cost or net realizable value. The carrying costs of these assets were $ 193.2 million and $ 258.2 million as of March 31, 2023 and December 31, 2022, respectively.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
Note 10— Debt
The following table summarizes our outstanding debt (in thousands):
March 31, 2023 December 31, 2022
ABL Credit Facility due 2025 $ — $ —
Term Loan Credit Agreement due 2030
550,000 —
7.75 % Senior Secured Notes due 2025
— 281,000
Term Loan B due 2026 — 203,125
12.875 % Senior Secured Notes due 2026
— 31,314
Principal amount of long-term debt 550,000 515,439
Less: unamortized discount and deferred financing costs ( 15,679 ) ( 9,907 )
Total debt, net of unamortized discount and deferred financing costs 534,321 505,532
Less: current maturities, net of unamortized discount and deferred financing costs ( 3,747 ) ( 10,956 )
Long-term debt, net of current maturities $ 530,574 $ 494,576
As of March 31, 2023 and December 31, 2022, we had $ 13.9 million and $ 19.5 million, respectively, in letters of credit outstanding under the loan and security agreements with certain lenders and Bank of America, N.A., as administrative agent and collateral agent (the “ABL Credit Facility”). We had $ 6.0 million in cash-collateralized letters of credit and surety bonds outstanding as of March 31, 2023 and December 31, 2022 under agreements with MLC and under certain other facilities.
Under the ABL Credit Facility and the Term Loan Credit Agreement due 2030, our subsidiaries are restricted from paying dividends or making other equity distributions, subject to certain exceptions.
ABL Credit Facility
Under the ABL Credit Facility, we have a revolving credit facility that provides for revolving loans and for the issuance of letters of credit (the “ABL Revolver”). On February 2, 2022, Par Petroleum, LLC, Par Hawaii, LLC (“PHL”), Hermes Consolidated, LLC, and Wyoming Pipeline Company, LLC (collectively, the “ABL Borrowers”), entered into the Amended and Restated Loan and Security Agreement (as amended from time to time, the “ABL Loan Agreement”) dated as of February 2, 2022, with certain lenders and Bank of America, N.A., which amended and restated the Loan and Security Agreement dated as of December 21, 2017, in its entirety. The ABL Loan Agreement increased the maximum principal amount of the ABL Revolver at any time outstanding from $ 85 million to $ 105 million, subject to a borrowing base, including a sublimit of $ 15 million for swingline loans and a sublimit of $ 65 million for the issuance of standby or commercial letters of credit, extended the maturity date of the ABL Revolver to February 2, 2025, and modified the ABL Revolver interest rate definitions to be based on the secured SOFR as administered by the Federal Reserve Bank of New York, among other modifications. The ABL Loan Agreement also included an accordion feature that would allow the ABL Borrowers to increase the size of the facility by up to $ 50 million in the aggregate, subject to certain limitations and conditions.
On March 30, 2022, the ABL Loan Agreement was amended to exercise the accordion feature of the ABL Loan Agreement. Under the amendment, the aggregate revolving commitments under the ABL Loan Agreement increased from $ 105 million to $ 142.5 million and the available increase under the accordion feature decreased to $ 12.5 million, subject to certain limitations and conditions.
As of March 31, 2023, the ABL Revolver had no outstanding revolving loans, $ 13.9 million in letters of credit outstanding, and a borrowing base of approximately $ 103.0 million. On April 26, 2023, we terminated the ABL Revolver and entered into a new ABL Credit Agreement. Please read Note 19—Subsequent Events for further information about the ABL Credit Agreement.
12
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
Term Loan Credit Agreement due 2030
On February 28, 2023, we entered into a term loan credit agreement (the “Term Loan Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent (the “Agent”), and the lenders party thereto (“Lenders”). Pursuant to the Term Loan Credit Agreement, the Lenders made an initial senior secured term loan in the principal amount of $ 550.0 million at a price equal to 98.5 % of its face value. The initial loan bears interest at SOFR, as defined below. The net proceeds were used to refinance our existing Term Loan B Facility and repurchase our outstanding 7.75% Senior Secured Notes and 12.875% Senior Secured Notes and any remaining net proceeds are expected to be used for general corporate purposes. We recognized an aggregate of $ 2.8 million in debt modification costs in connection with the refinancing, which were recorded in Debt extinguishment and commitment costs on our condensed consolidated statement of operations for the three months ended March 31, 2023.
The Term Loan Credit Agreement bears interest at a fluctuating rate per annum equal to either a SOFR rate or base rate “Base Rate”, provided that the Base Rate shall not be below 1.5 %, as defined in the Term Loan Credit Agreement. The SOFR rate and Base Rate definitions are summarized below:
SOFR Rate loan Secured overnight financing rate plus the applicable margin of 4.250 % per annum with a stepdown in the applicable margin of 0.25 % in the event the Company’s credit rating is upgraded to Ba3/BB-,
Base Rate loan A per annum rate plus the applicable margin of 3.250 %. The base rate is the greatest of:
• a rate as calculated by the Federal Reserve Bank of New York based on such day’s federal funds transactions by depository institutions (“Federal Funds Rate”) for such day, plus 0.5 %;
• a rate equal to adjusted term SOFR for a one month interest period as of such day plus 1.0 %; or
• a rate as announced by Wells Fargo (the “Prime Rate”).
The Term Loan Credit Agreement requires quarterly payments of $ 1.4 million on the last business day of each March, June, September and December, commencing on June 30, 2023, with the balance due upon maturity. The Term Loan Credit Agreement matures on February 28, 2030.
7.75% Senior Secured Notes due 2025
On February 28, 2023, we repurchased and cancelled $ 260.6 million in aggregate principal amount of the 7.75% Senior Secured Notes at a repurchase price of 102.120 % of the aggregate principal amount repurchased. On March 17, 2023, we repurchased and cancelled all remaining outstanding 7.75% Senior Secured Notes at a repurchase price of 101.938 % of the aggregate principal amount repurchased. In connection with the termination of the 7.75% Senior Secured Notes, we recognized debt extinguishment costs of $ 5.9 million associated with debt repurchase premiums and $ 3.4 million associated with unamortized deferred financing costs, which were recorded in Debt extinguishment and commitment costs on our condensed consolidated statement of operations for the three months ended March 31, 2023. Our 7.75% Senior Secured Notes bore interest at a rate of 7.750 % per year (payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2018) and were due to mature on December 15, 2025.
Term Loan B Facility due 2026
On February 28, 2023, we terminated and repaid all amounts outstanding under the Term Loan B Facility. We recognized debt extinguishment costs of $ 1.7 million associated with unamortized deferred financing costs, which were recorded in Debt extinguishment and commitment costs on our condensed consolidated statement of operations for the three months ended March 31, 2023. The Term Loan B Facility bore interest at a rate per annum equal to Adjusted LIBOR (as defined in the Term Loan B Facility) plus an applicable margin of 6.75 % or at a rate per annum equal to Alternate Base Rate (as defined in the Term Loan B Facility) plus an applicable margin of 5.75 %. In addition to the quarterly interest payments, the Term Loan B Facility required quarterly principal payments of $ 3.1 million. The Term Loan B Facility was due to mature on January 11, 2026.
12.875% Senior Secured Notes due 2026
On February 28, 2023, we repurchased and cancelled $ 29 million in aggregate principal amount of the 12.875% Senior Secured Notes at a repurchase price of 109.044 % of the aggregate principal amount repurchased. On March 17, 2023, we repurchased and cancelled all remaining outstanding 12.875% Senior Secured Notes at a repurchase price of 108.616 % of the aggregate principal amount repurchased. In connection with the termination of the 12.875% Senior Secured Notes, we recognized debt extinguishment costs of $ 2.8 million associated with debt repurchase premiums and $ 1.1 million associated
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
with unamortized deferred financing costs, which were recorded in Debt extinguishment and commitment costs on our condensed consolidated statement of operations for the three months ended March 31, 2023. The 12.875% Senior Secured Notes bore interest at an annual rate of 12.875 % per year (payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2021) and were due to mature on January 15, 2026.
Cross Default Provisions
Included within each of our debt agreements are affirmative and negative covenants, and customary cross default provisions, that require the repayment of amounts outstanding on demand unless the triggering payment default or acceleration is remedied, rescinded, or waived. As of March 31, 2023, we were in compliance with all of our debt instruments.
Guarantors
In connection with our shelf registration statement on Form S-3, which was filed with the Securities and Exchange Commission (“SEC”) and became automatically effective on February 14, 2022 (“Registration Statement”), we may sell non-convertible debt securities and other securities in one or more offerings with an aggregate initial offering price of up to $ 750.0 million. Any non-convertible debt securities issued under the Registration Statement may be fully and unconditionally guaranteed (except for customary release provisions), on a joint and several basis, by some or all of our subsidiaries, other than subsidiaries that are “minor” within the meaning of Rule 3-10 of Regulation S-X (the “Guarantor Subsidiaries”). We have excluded the summarized financial information for the Guarantor Subsidiaries as the assets and results of operations of the Company and the Guarantor Subsidiaries are not materially different than the corresponding amounts presented on our consolidated financial statements.
Note 11— Derivatives
Commodity Derivatives
Our condensed consolidated balance sheets present derivative assets and liabilities on a net basis. Please read Note 12—Fair Value Measurements for the gross fair value and net carrying value of our derivative instruments. Our cash margin that is required as collateral deposits cannot be offset against the fair value of open contracts except in the event of default.
Our open futures and over-the-counter (“OTC”) swaps at March 31, 2023, will settle by June 2024. At March 31, 2023, our open commodity derivative contracts represented (in thousands of barrels):
Contract Type Purchases Sales Net
Futures 51,364 ( 51,873 ) ( 509 )
Swaps 1,047 ( 3,028 ) ( 1,981 )
Total 52,411 ( 54,901 ) ( 2,490 )
At March 31, 2023, we also had option collars that economically hedge a portion of our internally consumed fuel at our refineries. The following table provides information on these option collars at our refineries as of March 31, 2023:
Average barrels per month 125,000
Weighted-average strike price - floor (in dollars) $ 67.08
Weighted-average strike price - ceiling (in dollars) $ 91.20
Earliest commencement date April 2023
Furthest expiry date December 2023
Interest Rate Derivatives
We are exposed to interest rate volatility in our ABL Revolver, Term Loan Credit Agreement, Supply and Offtake Agreement, and Washington Refinery Intermediation Agreement. We may utilize interest rate swaps to manage our interest rate risk. As of March 31, 2023 and December 31, 2022, we did not hold any interest rate derivative instruments.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
The following table provides information on the fair value amounts (in thousands) of these derivatives as of March 31, 2023 and December 31, 2022, and their placement within our condensed consolidated balance sheets.
Balance Sheet Location March 31, 2023 December 31, 2022
Asset (Liability)
Commodity derivatives (1) Prepaid and other current assets $ 7,835 $ 495
Commodity derivatives Other accrued liabilities ( 2,047 ) ( 10,989 )
J. Aron repurchase obligation derivative Obligations under inventory financing agreements 1,224 ( 12,156 )
MLC terminal obligation derivative Obligations under inventory financing agreements ( 7,203 ) 14,435
_________________________________________________________
(1) Does not include cash collateral of $ 18.9 million and $ 40.8 million recorded in Prepaid and other current assets as of March 31, 2023 and December 31, 2022, respectively, and $ 9.5 million in Other long-term assets as of both March 31, 2023 and December 31, 2022.
The following table summarizes the pre-tax gains (losses) recognized in Net income (loss) on our condensed consolidated statements of operations resulting from changes in fair value of derivative instruments not designated as hedges charged directly to earnings (in thousands):
Three Months Ended March 31,
Statement of Operations Location 2023 2022
Commodity derivatives Cost of revenues (excluding depreciation) $ ( 624 ) $ ( 18,454 )
J. Aron repurchase obligation derivative Cost of revenues (excluding depreciation) 13,380 ( 43,269 )
MLC terminal obligation derivative Cost of revenues (excluding depreciation) ( 17,023 ) ( 64,396 )
Note 12— Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Derivative Instruments
We utilize commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil, future purchases and sales of refined products, and cost of crude oil consumed in the refining process. We may utilize interest rate swaps to manage our interest rate risk.
We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as Level 1 instruments are valued using quoted prices in active markets for identical assets and liabilities. These include our exchange traded futures. Level 2 instruments are valued using quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Our Level 2 instruments include OTC swaps and options. These derivatives are valued using market quotations from independent price reporting agencies and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. The valuation of the embedded derivatives related to our J. Aron repurchase and MLC terminal obligations is based on estimates of the prices and differentials assuming settlement at the end of the reporting period. Estimates of the J. Aron and MLC settlement prices are based on observable inputs, such as Brent and West Texas Intermediate Crude Oil (“WTI”) indices, and unobservable inputs, such as contractual price differentials as defined in the Supply and Offtake Agreement and Washington Refinery Intermediation Agreement. Such contractual differentials vary by location and by the type of product, have a weighted average premium of $ 11.67 , and range from a discount of $ 8.99 per barrel to a premium of $ 53.79 per barrel as of March 31, 2023. Contractual price differentials are considered unobservable inputs; therefore, these embedded derivatives are classified as Level 3 instruments. We did not have other commodity derivatives classified as Level 3 at March 31, 2023, or December 31, 2022. Please read Note 11—Derivatives for further information on derivatives.
Gross Environmental credit obligations
Estimates of our gross environmental credit obligations are based on the amount of RINs or other environmental credits required to comply with U.S. Environmental Protection Agency (“EPA”) and the State of Washington’s regulations and
15
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
the market prices of those RINs or other environmental credits as of the end of the reporting period. The gross environmental credit obligations are classified as Level 2 instruments as we obtain the pricing inputs for our RINs and other environmental credits from brokers based on market quotes on similar instruments. Please read Note 14—Commitments and Contingencies for further information on the EPA and the State of Washington’s regulations related to greenhouse gases.
Financial Statement Impact
Fair value amounts by hierarchy level as of March 31, 2023 and December 31, 2022, are presented gross in the tables below (in thousands):
March 31, 2023
Level 1 Level 2 Level 3 Gross Fair Value Effect of Counter-Party Netting Net Carrying Value on Balance Sheet (1)
Assets
Commodity derivatives $ 180,862 $ 9,327 $ — $ 190,189 $ ( 182,354 ) $ 7,835
Liabilities
Commodity derivatives $ ( 180,397 ) $ ( 4,004 ) $ — $ ( 184,401 ) $ 182,354 $ ( 2,047 )
J. Aron repurchase obligation derivative — — 1,224 1,224 — 1,224
MLC terminal obligation derivative — — ( 7,203 ) ( 7,203 ) — ( 7,203 )
Gross environmental credit obligations (2) — ( 346,683 ) — ( 346,683 ) — ( 346,683 )
Total liabilities $ ( 180,397 ) $ ( 350,687 ) $ ( 5,979 ) $ ( 537,063 ) $ 182,354 $ ( 354,709 )
December 31, 2022
Level 1 Level 2 Level 3 Gross Fair Value Effect of Counter-Party Netting Net Carrying Value on Balance Sheet (1)
Assets
Commodity derivatives $ 161,541 $ 8,369 $ — $ 169,910 $ ( 169,415 ) $ 495
Liabilities
Commodity derivatives $ ( 172,529 ) $ ( 7,875 ) $ — $ ( 180,404 ) $ 169,415 $ ( 10,989 )
J. Aron repurchase obligation derivative — — ( 12,156 ) ( 12,156 ) — ( 12,156 )
MLC terminal obligation derivative — — 14,435 14,435 — 14,435
Gross environmental credit obligations (2) — ( 549,791 ) — ( 549,791 ) — ( 549,791 )
Total liabilities $ ( 172,529 ) $ ( 557,666 ) $ 2,279 $ ( 727,916 ) $ 169,415 $ ( 558,501 )
_________________________________________________________
(1) Does not include cash collateral of $ 28.4 million and $ 50.3 million as of March 31, 2023 and December 31, 2022, respectively, included within Prepaid and other current assets and Other long-term assets on our condensed consolidated balance sheets.
(2) Does not include RINs assets and other environmental credits of $ 193.2 million and $ 258.2 million presented as Inventories on our condensed consolidated balance sheet and stated at the lower of cost and net realizable value as of March 31, 2023 and December 31, 2022, respectively.
16
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
A roll forward of Level 3 derivative instruments measured at fair value on a recurring basis is as follows (in thousands):
Three Months Ended March 31,
2023 2022
Balance, at beginning of period $ 2,279 $ ( 37,321 )
Settlements ( 4,615 ) 92,308
Total losses included in earnings (1) ( 3,643 ) ( 107,665 )
Balance, at end of period $ ( 5,979 ) $ ( 52,678 )
_________________________________________________________
(1) Included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations.
The carrying value and fair value of long-term debt and other financial instruments as of March 31, 2023 and December 31, 2022 are as follows (in thousands):
March 31, 2023
Carrying Value Fair Value
ABL Credit Facility due 2025 (2) $ — $ —
Term Loan Credit Agreement due 2030 (1)
534,321 539,715
December 31, 2022
Carrying Value Fair Value
ABL Credit Facility due 2025 (2) $ — $ —
7.75 % Senior Secured Notes due 2025 (1)
277,137 276,785
Term Loan B Facility due 2026 (1) 198,268 201,094
12.875 % Senior Secured Notes due 2026 (1)
30,127 34,029
_________________________________________________________
(1) The fair value measurements of the Term Loan Credit Agreement, 7.75 % Senior Secured Notes, Term Loan B Facility, and 12.875 % Senior Secured Notes are considered Level 2 measurements in the fair value hierarchy as discussed below.
(2) The fair value measurement of the ABL Credit Facility is considered a Level 3 measurement in the fair value hierarchy.
The fair value of the Term Loan Credit Agreement, 7.75 % Senior Secured Notes, Term Loan B Facility, and 12.875 % Senior Secured Notes were determined using a market approach based on quoted prices. The inputs used to measure the fair value are classified as Level 2 inputs within the fair value hierarchy because the Term Loan Credit Agreement, 7.75 % Senior Secured Notes, Term Loan B Facility, and 12.875 % Senior Secured Notes may not be actively traded.
The carrying value of our ABL Credit Facility was determined to approximate fair value as of March 31, 2023. The fair value of all non-derivative financial instruments recorded in current assets, including cash and cash equivalents, restricted cash, and trade accounts receivable, and current liabilities, including accounts payable, approximate their carrying value due to their short-term nature.
Note 13— Leases
We have cancellable and non-cancellable finance and operating lease liabilities for the lease of land, vehicles, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products. Most of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 30 years or more. There are no material residual value guarantees associated with any of our leases.
17
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
The following table provides information on the amounts (in thousands) of our right-of-use assets (“ROU assets”) and liabilities as of March 31, 2023 and December 31, 2022 and their placement within our condensed consolidated balance sheets:
Lease type Balance Sheet Location March 31, 2023 December 31, 2022
Assets
Finance Property, plant, and equipment $ 21,881 $ 21,150
Finance Accumulated amortization ( 10,781 ) ( 10,308 )
Finance Property, plant, and equipment, net $ 11,100 $ 10,842
Operating Operating lease right-of-use assets 341,292 350,761
Total right-of-use assets $ 352,392 $ 361,603
Liabilities
Current
Finance Other accrued liabilities $ 1,717 $ 1,782
Operating Operating lease liabilities 66,529 66,081
Long-term
Finance Finance lease liabilities 6,670 6,311
Operating Operating lease liabilities 281,471 292,701
Total lease liabilities $ 356,387 $ 366,875
The following table summarizes the weighted-average lease terms and discount rates of our leases as of March 31, 2023 and December 31, 2022:
March 31, 2023 December 31, 2022
Weighted-average remaining lease term (in years)
Finance 5.69 5.60
Operating 9.06 9.00
Weighted-average discount rate
Finance 7.47 % 7.38 %
Operating 7.06 % 7.10 %
The following table summarizes the lease costs and income recognized in our condensed consolidated statements of operations (in thousands):
Three Months Ended March 31,
Lease cost (income) type 2023 2022
Finance lease cost
Amortization of finance lease ROU assets $ 473 $ 484
Interest on lease liabilities 147 161
Operating lease cost 23,869 22,254
Variable lease cost 1,442 1,246
Short-term lease cost 2,627 986
Net lease cost $ 28,558 $ 25,131
Operating lease income (1) $ ( 3,427 ) $ ( 846 )
_________________________________________________________
(1) The majority of our lessor income comes from leases with lease terms of one year or less and the estimated future undiscounted cash flows from lessor income are not expected to be material.
18
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
The following table summarizes the supplemental cash flow information related to leases as follows (in thousands):
Three Months Ended March 31,
Lease type 2023 2022
Cash paid for amounts included in the measurement of liabilities
Financing cash flows from finance leases $ 461 $ 482
Operating cash flows from finance leases 141 161
Operating cash flows from operating leases 25,015 19,394
Non-cash supplemental amounts
ROU assets obtained in exchange for new finance lease liabilities 731 594
ROU assets obtained in exchange for new operating lease liabilities 8,380 10,678
ROU assets terminated in exchange for release from operating lease liabilities — 1,029
The table below includes the estimated future undiscounted cash flows for finance and operating leases as of March 31, 2023 (in thousands):
For the year ending December 31, Finance leases Operating leases Total
2023 (1) $ 1,734 $ 68,943 $ 70,677
2024 1,999 75,514 77,513
2025 1,994 51,357 53,351
2026 1,526 46,264 47,790
2027 1,298 44,066 45,364
2028 535 41,179 41,714
Thereafter 1,402 122,666 124,068
Total lease payments 10,488 449,989 460,477
Less amount representing interest ( 2,101 ) ( 101,989 ) ( 104,090 )
Present value of lease liabilities $ 8,387 $ 348,000 $ 356,387
_________________________________________________________
(1) Represents the period from April 1, 2023 to December 31, 2023.
Additionally, we have $ 3.8 million and $ 12.4 million in future undiscounted cash flows for finance and operating leases that have not yet commenced, respectively. These leases are expected to commence when the lessor has made the equipment or location available to us to operate or begin construction, respectively.
Note 14— Commitments and Contingencies
In the ordinary course of business, we are a party to various lawsuits and other contingent matters. We establish accruals for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on our financial condition, results of operations, or cash flows.
Tax and Related Matters
We are also party to various other legal proceedings, claims, and regulatory, tax or government audits, inquiries, and investigations that arise in the ordinary course of business. For example, during the first quarter of 2022 we received a tax assessment in the amount of $ 1.4 million from the Washington Department of Revenue related to its audit of certain taxes allegedly payable on certain sales of raw vacuum gas oil that occurred between 2014 and 2016. We believe the Department of Revenue’s interpretation is in conflict with its prior guidance and we appealed in November 2022. By opinion dated September 22, 2021, the Hawaii Attorney General reversed a prior 1964 opinion exempting various business transactions conducted in the Hawaii foreign trade zone from certain state taxes. We and other similarly situated state taxpayers who had previously claimed such exemptions are currently being audited for such prior tax periods. Similarly, on September 30, 2021, we received notice of a complaint filed on May 17, 2021, on camera and under seal in the first circuit court of the state of Hawaii alleging that Par Hawaii Refining, LLC, Par Pacific Holdings, Inc. and certain unnamed defendants made false claims and statements in connection with various state tax returns related to our business conducted within the Hawaii foreign trade zone, and seeking unspecified damages, penalties, interest and injunctive relief. We dispute the allegations in the complaint and intend to
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
vigorously defend ourselves in such proceeding. We believe the likelihood of an unfavorable outcome in these matters to be neither probable nor reasonably estimable.
Environmental Matters
Like other petroleum refiners, our operations are subject to extensive and periodically-changing federal, state, and local environmental laws and regulations governing air emissions, wastewater discharges, and solid and hazardous waste management activities. Many of these regulations are becoming increasingly stringent and the cost of compliance can be expected to increase over time.
Periodically, we receive communications from various federal, state, and local governmental authorities asserting violations of environmental laws and/or regulations. These governmental entities may also propose or assess fines or require corrective actions for these asserted violations. Except as disclosed below, we do not anticipate that any such matters currently asserted will have a material impact on our financial condition, results of operations, or cash flows.
Wyoming Refinery
Our Wyoming refinery is subject to a number of consent decrees, orders, and settlement agreements involving the EPA and/or the Wyoming Department of Environmental Quality, some of which date back to the late 1970s and several of which remain in effect, requiring further actions at the Wyoming refinery. The largest cost component arising from these various decrees relates to the investigation, monitoring, and remediation of soil, groundwater, surface water, and sediment contamination associated with the facility’s historic operations. Investigative work by Hermes Consolidated LLC, and its wholly owned subsidiary, Wyoming Pipeline Company (collectively, “WRC” or “Wyoming Refining”) and negotiations with the relevant agencies as to remedial approaches remain ongoing on a number of aspects of the contamination, meaning that investigation, monitoring, and remediation costs are not reasonably estimable for some elements of these efforts. As of March 31, 2023, we have accrued $ 14.8 million for the well-understood components of these efforts based on current information, approximately one-third of which we expect to incur in the next five years and the remainder to be incurred over approximately 30 years.
Additionally, we believe the Wyoming refinery will need to modify or close a series of wastewater impoundments in the next several years and replace those impoundments with a new wastewater treatment system. Based on current information, reasonable estimates we have received suggest costs of approximately $ 11.6 million to design and construct a new wastewater treatment system.
Finally, among the various historic consent decrees, orders, and settlement agreements into which Wyoming Refining has entered, there are several penalty orders associated with exceedances of permitted limits by the Wyoming refinery’s wastewater discharges. Although the frequency of these exceedances has declined over time, Wyoming Refining may become subject to new penalty enforcement action in the next several years, which could involve penalties in excess of $ 300,000 .
Washington Climate Commitment Act and Clean Fuel Standard
In 2021, the Washington legislature passed the Climate Commitment Act (“Washington CCA”), which established a cap and invest program designed to significantly reduce greenhouse gas emissions. Rules implementing the Washington CCA by the Washington Department of Ecology set a cap on greenhouse gas emissions, provide mechanisms for the sale and tracking of tradable emissions allowances, and establish additional compliance and accountability measures. The Washington CCA became effective in January 2023 and the first auction for emissions allowances took place in February 2023. Additionally, a low carbon fuel standard (the “Clean Fuel Standard”) that limits carbon in transportation fuels and enables certain producers to buy or sell credits was also signed into law and became effective in 2023. We will be required to purchase compliance credits or allowances if we are unable to reduce emissions at our Tacoma refinery or reduce the amount of carbon in the transportation fuels we sell in Washington, which could have a material impact on our financial condition, results of operations, or cash flows.
Regulation of Greenhouse Gases
Under the Energy Independence and Security Act (the “EISA”), the Renewable Fuel Standard (the “RFS”) requires an increasing amount of renewable fuel to be blended into the nation’s transportation fuel supply. Over time, higher annual RFS requirements have the potential to reduce demand for our refined transportation fuel products. In the near term, the RFS will be satisfied primarily with fuel ethanol blended into gasoline or by purchasing renewable credits, referred to as RINs, to maintain compliance. For additional information, please read Item 1. — Business — Environmental Regulations on our Annual Report on Form 10-K for the year ended December 31, 2022. As of March 31, 2023, our estimate of the renewable volume obligation
20
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
(“RVO”) liability for the 2020 and 2022 compliance years is based on the RFS volumetric requirements which the EPA finalized on June 3, 2022. Our RVO liability for the 2023 compliance year is based on the RFS volumetric requirements that were proposed on December 1, 2022. During the three months ended March 31, 2023, we settled a portion of our 2020 and all of our 2021 RVO liabilities, which resulted in a gain of $ 94.7 million associated with the difference between the carrying value of the RINs retired and the market value of the RVO settled. This gain is included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations.
The RFS may present production and logistics challenges for both the renewable fuels and petroleum refining and marketing industries in that we may have to enter into arrangements with other parties or purchase D3 waivers from the EPA to meet our obligations to use advanced biofuels, including biomass-based diesel and cellulosic biofuel, with potentially uncertain supplies of these new fuels.
There will be compliance costs and uncertainties regarding how we will comply with the various requirements contained in the EISA, RFS, and other fuel-related regulations. We may experience a decrease in demand for refined petroleum products due to an increase in combined fleet mileage or due to refined petroleum products being replaced by renewable fuels.
Recovery Trusts
We emerged from the reorganization of Delta Petroleum Corporation (“Delta”) on August 31, 2012 (“Emergence Date”), when the plan of reorganization (“Plan”) was consummated. On the Emergence Date, we formed the Delta Petroleum General Recovery Trust (“General Trust”). The General Trust was formed to pursue certain litigation against third parties, including preference actions, fraudulent transfer and conveyance actions, rights of setoff and other claims, or causes of action under the U.S. Bankruptcy Code and other claims and potential claims that Delta and its subsidiaries (collectively, “Debtors”) hold against third parties. On February 27, 2018, the Bankruptcy Court entered its final decree closing the Chapter 11 bankruptcy cases of Delta and the other Debtors, discharging the trustee for the General Trust, and finding that all assets of the General Trust were resolved, abandoned, or liquidated and have been distributed in accordance with the requirements of the Plan. In addition, the final decree required the Company or the General Trust, as applicable, to maintain the current accruals owed on account of the remaining claims of the U.S. Government and Noble Energy, Inc.
As of March 31, 2023, two related claims totaling approximately $ 22.4 million remained to be resolved and we have accrued approximately $ 0.5 million representing the estimated value of claims remaining to be settled which are deemed probable and estimable at period end.
One of the two remaining claims was filed by the U.S. Government for approximately $ 22.4 million relating to ongoing litigation concerning a plugging and abandonment obligation in Pacific Outer Continental Shelf Lease OCS-P 0320, comprising part of the Sword Unit in the Santa Barbara Channel, California. The second unliquidated claim, which is related to the same plugging and abandonment obligation, was filed by Noble Energy Inc., the operator and majority interest owner of the Sword Unit. We believe the probability of issuing stock to satisfy the full claim amount is remote, as the obligations upon which such proof of claim is asserted are joint and several among all working interest owners and Delta, our predecessor, only owned an approximate 3.4 % aggregate working interest in the unit.
The settlement of claims is subject to ongoing litigation and we are unable to predict with certainty how many shares will be required to satisfy all claims. Pursuant to the Plan, allowed claims are settled at a ratio of 54.4 shares per $1,000 of claim.
Note 15— Stockholders’ Equity
Share Repurchase Program
On November 10, 2021, the Board authorized and approved a share repurchase program for up to $ 50 million of the outstanding shares of the Company’s common stock, with no specified end date. During the three months ended March 31, 2022, 362 thousand shares were repurchased under this share repurchase program for $ 5 million. During the three months ended March 31, 2023, no shares were repurchased under this share repurchase program. As of March 31, 2023, there was $ 43.5 million of authorization remaining under this share repurchase program.
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
Incentive Plans
The following table summarizes our compensation costs recognized in General and administrative expense (excluding depreciation) and Operating expense (excluding depreciation) under the Amended and Restated Par Pacific Holdings, Inc. 2012 Long-term Incentive Plan and Stock Purchase Plan (in thousands):
Three Months Ended March 31,
2023 2022
Restricted Stock Awards $ 1,395 $ 1,749
Restricted Stock Units 508 673
Stock Option Awards 414 1,236
The following table summarizes our grant activity related to our stock based incentive plan during the period, including the number of granted shares, options, awards, or units; the fair value as of the grant date; total unrecognized compensation costs as of the period end; and the weighted-average period in years over which the compensation costs are expected to be recognized (in thousands except weighted average period):
Three Months Ended March 31, 2023
Awards granted Fair value Unrecognized compensation costs Weighted average period
Restricted Stock Awards and Restricted Stock Units 303 $ 8,269 $ 15,432 1.8 years
Stock Option Awards (1) — — 3,297 1.7 years
Performance Restricted Stock Units (2) 90 2,476 2,968 2.6 years
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(1) There were no stock option awards granted for the period.
(2) Performance restricted stock units are subject to certain annual performance targets based on three-year-performance periods as defined by our Board of Directors.
Note 16— Income (Loss) per Share
The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts):
Three Months Ended March 31,
2023 2022
Net income (loss) $ 237,890 $ ( 137,051 )
Plus: Net income effect of convertible securities — —
Numerator for diluted income (loss) per common share $ 237,890 $ ( 137,051 )
Basic weighted-average common stock shares outstanding 60,111 59,413
Plus: dilutive effects of common stock equivalents (1) 936 —
Diluted weighted-average common stock shares outstanding 61,047 59,413
Basic income (loss) per common share $ 3.96 $ ( 2.31 )
Diluted income (loss) per common share $ 3.90 $ ( 2.31 )
Diluted income (loss) per common share excludes the following equity instruments because their effect would be anti-dilutive:
Shares of unvested restricted stock 187 942
Shares of stock options — 2,405
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
_________________________________________________________
(1) Entities with a net loss from continuing operations are prohibited from including potential common shares in the computation of diluted per share amounts. We have utilized the basic shares outstanding to calculate both basic and diluted Net Loss per common share for the three months ended March 31, 2022 .
Note 17— Income Taxes
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management continues to conclude that we did not meet the “more likely than not” requirement in order to recognize deferred tax assets on the remaining amounts and a valuation allowance has been recorded for substantially all of our net deferred tax assets at March 31, 2023 and December 31, 2022.
We believe that any adjustment to our uncertain tax positions would no t have a material impact on our financial statements given the Company’s deferred tax and corresponding valuation allowance position as of March 31, 2023 and December 31, 2022.
As of December 31, 2022, we had approximately $ 1.2 billion in net operating loss carryforwards (“NOL carryforwards”); however, we currently have a valuation allowance against this and substantially all of our other deferred taxed assets.
Our net taxable income must be apportioned to various states based upon the income tax laws of the states in which we derive our revenue. Our NOL carryforwards will not always be available to offset taxable income apportioned to the various states. The states from which our refining, retail, and logistics revenues are derived are not the same states in which our NOLs were incurred; therefore, we expect to incur state tax liabilities in connection with our refining, retail, and logistics operations.
Note 18— Segment Information
We report the results for the following four reportable segments: (i) Refining, (ii) Retail, (iii) Logistics, and (iv) Corporate and Other.
Summarized financial information concerning reportable segments consists of the following (in thousands):
Three Months Ended March 31, 2023 Refining Logistics Retail Corporate, Eliminations and Other (1) Total
Revenues $ 1,615,412 $ 52,388 $ 135,572 $ ( 118,163 ) $ 1,685,209
Cost of revenues (excluding depreciation)
1,277,670 31,299 98,228 ( 118,177 ) 1,289,020
Operating expense (excluding depreciation)
58,882 3,447 20,791 — 83,120
Depreciation and amortization 15,723 5,034 3,079 524 24,360
General and administrative expense (excluding depreciation) — — — 19,286 19,286
Acquisition and integration costs — — — 5,271 5,271
Par West redevelopment and other costs — — — 2,750 2,750
Operating income (loss) $ 263,137 $ 12,608 $ 13,474 $ ( 27,817 ) $ 261,402
Interest expense and financing costs, net ( 16,250 )
Debt extinguishment and commitment costs ( 17,720 )
Other expense, net ( 35 )
Equity earnings from Laramie Energy, LLC 10,706
Income before income taxes 238,103
Income tax expense ( 213 )
Net income $ 237,890
Capital expenditures $ 7,654 $ 881 $ 4,150 $ 528 $ 13,213
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PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2023 and 2022
Three Months Ended March 31, 2022 Refining Logistics Retail Corporate, Eliminations and Other (1) Total
Revenues $ 1,299,223 $ 42,461 $ 119,909 $ ( 111,300 ) $ 1,350,293
Cost of revenues (excluding depreciation)
1,343,915 23,749 93,842 ( 111,257 ) 1,350,249
Operating expense (excluding depreciation)
58,300 3,773 19,331 — 81,404
Depreciation and amortization 15,333 5,087 2,691 669 23,780
General and administrative expense (excluding depreciation) — — — 15,893 15,893
Acquisition and integration costs — — — 63 63
Operating income (loss) $ ( 118,325 ) $ 9,852 $ 4,045 $ ( 16,668 ) $ ( 121,096 )
Interest expense and financing costs, net ( 16,394 )
Other income, net 2
Loss before income taxes ( 137,488 )
Income tax benefit 437
Net loss $ ( 137,051 )
Capital expenditures $ 12,829 $ 1,733 $ 1,581 $ 190 $ 16,333
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(1) Includes eliminations of intersegment revenues and cost of revenues of $ 118.2 million and $ 111.3 million for the three months ended March 31, 2023 and 2022, respectively.
Note 19— Subsequent Events
Asset-Based Revolving Credit Agreement
On April 26, 2023, we entered into an Asset-Based Revolving Credit Agreement (as amended from time to time, the “ABL Credit Agreement”) with certain lenders, and Wells Fargo Bank, National Association, as administrative agent and collateral agent, providing for a senior secured asset-based revolving credit facility in an aggregate principal amount of up to $ 150 million. and allows for an increase up to $ 450 million in conjunction with the planned Billings Acquisition (together, the “Facilities”). Initially the ABL Credit Agreement permits the issuance of letters of credit of up to $ 65 million, with an increase to $ 250 million in conjunction with the Billings Acquisition. The ABL Credit Agreement allows us to request an increase in the commitment under the Facilities of up to $ 250 million. The Facilities will mature and the commitments thereunder will terminate five years after the Closing Date and are secured by a first priority lien over certain of our assets and other personal property, subject to certain customary exceptions.
The interest rates applicable to borrowings under the Facilities are based on a fluctuating rate of interest measured by reference to either, at the our option, (i) a base rate, plus an applicable margin, or (ii) a Adjusted Term Secured Overnight Financing Rate (“SOFR”), plus an applicable margin. The initial applicable margin for borrowings under the Facilities is 0.50 % per annum with respect to base rate borrowings and 1.50 % per annum with respect to SOFR borrowings, and the applicable margin for such borrowings after June 30, 2023 will be based on the our quarterly average excess availability as determined by reference to a borrowing base, ranging from 0.25 % per annum to 0.75 % per annum with respect to base rate borrowings and from 1.25 % per annum to 1.75 % per annum with respect to SOFR borrowings. We will also pay a de minimis fee for any undrawn amounts available under the ABL Credit Agreement.
The ABL Credit Agreement includes certain customary affirmative and negative covenants, including a minimum financial coverage fixed charge coverage ratio and a minimum Borrower Group Fixed Charge Coverage Ratio. In addition, the covenants limit the our ability and the ability of our restricted subsidiaries to incur indebtedness, grant liens, make investments, engage in acquisitions, mergers, or consolidations, engage in certain hedging transactions, and pay dividends and other restricted payments.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.