PAR PACIFIC HOLDINGS, INC. 10-Q

Item 1. FINANCIAL STATEMENTS PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share data) June 30, 2023 December 31, 2022 ASSETS Current assets Cash and cash equivalents $ 190,951 $ 490,925 Restricted cash 4,006 4,001 Total cash, cash equivalents, and restricted cash 194,957 494,926 Trade accounts receivable, net of allowances of $ 0.2 million and $ 0.3 million at June 30, 2023 and December 31, 2022, respectively 402,086 252,885 Inventories 1,241,494 1,041,983 Prepaid and other current assets 54,814 92,043 Total current assets 1,893,351 1,881,837 Property, plant, and equipment Property, plant, and equipment 1,517,019 1,224,567 Less accumulated depreciation and amortization ( 426,760 ) ( 388,733 ) Property, plant, and equipment, net 1,090,259 835,834 Long-term assets Operating lease right-of-use assets 330,864 350,761 Refining and logistics equity investments 84,425 — Intangible assets, net 12,247 13,577 Goodwill 129,275 129,325 Other long-term assets 69,549 69,313 Total assets $ 3,609,970 $ 3,280,647 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current maturities of long-term debt $ 4,353 $ 10,956 Obligations under inventory financing agreements 783,622 893,065 Accounts payable 351,320 151,395 Accrued taxes 48,474 32,099 Operating lease liabilities 69,053 66,081 Other accrued liabilities 513,131 640,494 Total current liabilities 1,769,953 1,794,090 Long-term liabilities Long-term debt, net of current maturities 574,762 494,576 Finance lease liabilities 6,509 6,311 Operating lease liabilities 270,964 292,701 Other liabilities 68,471 48,432 Total liabilities 2,690,659 2,636,110 Commitments and contingencies (Note 15) 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 June 30, 2023 and December 31, 2022, 61,043,466 shares and 60,470,837 shares issued at June 30, 2023 and December 31, 2022, respectively 610 604 Additional paid-in capital 845,979 836,491 Accumulated earnings (deficit) 64,615 ( 200,687 ) Accumulated other comprehensive income 8,107 8,129 Total stockholders’ equity 919,311 644,537 Total liabilities and stockholders’ equity $ 3,609,970 $ 3,280,647 See accompanying notes to the condensed consolidated financial statements. 1 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Revenues $ 1,783,927 $ 2,106,332 $ 3,469,136 $ 3,456,625 Operating expenses Cost of revenues (excluding depreciation) 1,574,806 1,808,925 2,863,826 3,159,174 Operating expense (excluding depreciation) 101,843 80,865 184,963 160,881 Depreciation and amortization 28,216 25,583 52,576 49,363 Loss on sale of assets, net — 15 — 15 General and administrative expense (excluding depreciation) 23,168 15,438 42,454 31,331 Equity (earnings) from refining and logistics investments ( 425 ) — ( 425 ) — Acquisition and integration costs 7,273 — 12,544 63 Par West redevelopment and other costs 2,613 1,477 5,363 2,865 Total operating expenses 1,737,494 1,932,303 3,161,301 3,403,692 Operating income 46,433 174,029 307,835 52,933 Other income (expense) Interest expense and financing costs, net ( 14,909 ) ( 18,154 ) ( 31,159 ) ( 34,548 ) Debt extinguishment and commitment costs 38 ( 5,672 ) ( 17,682 ) ( 5,672 ) Other income, net 379 47 344 49 Equity earnings from Laramie Energy, LLC — — 10,706 — Total other expense, net ( 14,492 ) ( 23,779 ) ( 37,791 ) ( 40,171 ) Income before income taxes 31,941 150,250 270,044 12,762 Income tax expense ( 1,928 ) ( 1,125 ) ( 2,141 ) ( 688 ) Net income $ 30,013 $ 149,125 $ 267,903 $ 12,074 Income per share Basic $ 0.50 $ 2.51 $ 4.45 $ 0.20 Diluted $ 0.49 $ 2.50 $ 4.39 $ 0.20 Weighted-average number of shares outstanding Basic 60,399 59,479 60,255 59,449 Diluted 60,993 59,642 61,020 59,644 See accompanying notes to the condensed consolidated financial statements. 2 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (in thousands) Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Net income $ 30,013 $ 149,125 $ 267,903 $ 12,074 Other comprehensive income (loss): Other post-retirement benefits loss, net of tax ( 11 ) — ( 22 ) — Total other comprehensive income (loss), net of tax ( 11 ) — ( 22 ) — Comprehensive income (loss) $ 30,002 $ 149,125 $ 267,881 $ 12,074 See accompanying notes to the condensed consolidated financial statements. 3 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net Income $ 267,903 $ 12,074 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 52,576 49,363 Debt extinguishment and commitment costs 17,682 5,672 Non-cash interest expense 1,615 2,106 Non-cash lower of cost and net realizable value adjustment — ( 463 ) Deferred taxes 1,226 615 Loss on sale of assets, net — 15 Stock-based compensation 6,082 5,769 Unrealized (gain) loss on derivative contracts 7,621 ( 13,155 ) Equity earnings from Laramie Energy, LLC ( 10,706 ) — Equity earnings from refining and logistics investments ( 425 ) — Dividends received from refining and logistics investments 425 — Net changes in operating assets and liabilities: Trade accounts receivable ( 134,440 ) ( 174,818 ) Prepaid and other assets 4,630 ( 68,580 ) Inventories 99,582 ( 369,846 ) Deferred turnaround expenditures — ( 29,688 ) Obligations under inventory financing agreements ( 78,038 ) 309,396 Accounts payable, other accrued liabilities, and operating lease ROU assets and liabilities 76,507 299,197 Net cash provided by operating activities 312,240 27,657 Cash flows from investing activities: Acquisition of business ( 608,223 ) — Capital expenditures ( 30,729 ) ( 29,020 ) Proceeds from sale of assets and other 50 68 Return of capital from Laramie Energy, LLC 10,706 — Return of capital from refining and logistics investments 2,175 — Net cash used in investing activities ( 626,021 ) ( 28,952 ) Cash flows from financing activities: Proceeds from borrowings 763,765 256,163 Repayments of borrowings ( 702,499 ) ( 313,143 ) Net borrowings (repayments) on deferred payment arrangements and receivable advances ( 31,405 ) 142,348 Payment of deferred loan costs ( 9,127 ) — Purchase of common stock for retirement ( 5,171 ) ( 6,483 ) Exercise of stock options 6,374 — Payments for debt extinguishment and commitment costs ( 8,742 ) ( 3,983 ) Other financing activities, net 617 350 Net cash provided by financing activities 13,812 75,252 Net increase in cash, cash equivalents, and restricted cash ( 299,969 ) 73,957 Cash, cash equivalents, and restricted cash at beginning of period 494,926 116,221 Cash, cash equivalents, and restricted cash at end of period $ 194,957 $ 190,178 Supplemental cash flow information: Net cash paid for: Interest $ ( 37,969 ) $ ( 30,735 ) Taxes ( 2,810 ) ( 13 ) Non-cash investing and financing activities: Accrued capital expenditures $ 7,706 $ 3,818 ROU assets obtained in exchange for new finance lease liabilities 944 594 ROU assets obtained in exchange for new operating lease liabilities 16,684 13,692 ROU assets terminated in exchange for release from operating lease liabilities — 32,902 See accompanying notes to the condensed consolidated financial statements. 4 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) (in thousands) Accumulated Additional Other Common Stock Paid-In Accumulated Comprehensive Total Shares Amount Capital Deficit Income Equity Balance, December 31, 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 Issuance of common stock for employee stock purchase plan 41 — 632 — — 632 Stock-based compensation 3 — 2,017 — — 2,017 Purchase of common stock for retirement ( 1 ) — ( 94 ) — — ( 94 ) Exercise of stock options 65 1 1,131 — — 1,132 Net income — — — 149,125 — 149,125 Balance, June 30, 2022 60,220 $ 602 $ 827,623 $ ( 551,998 ) $ 2,502 $ 278,729 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 Issuance of common stock for employee stock purchase plan 27 — 726 — — 726 Stock-based compensation 115 1 3,655 — — 3,656 Purchase of common stock for retirement ( 128 ) ( 1 ) ( 464 ) ( 2,601 ) — ( 3,066 ) Other comprehensive loss — — — — ( 11 ) ( 11 ) Net income — — — 30,013 — 30,013 Balance, June 30, 2023 61,044 $ 610 $ 845,979 $ 64,615 $ 8,107 $ 919,311 See accompanying notes to the condensed consolidated financial statements. 5 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 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 four refineries in Hawaii, Wyoming, Washington, and Montana. Beginning June 1, 2023, we own and operate a refinery that processes Western Canadian and regional Rocky Mountain crude oil and a 65 % interest in an adjacent cogeneration facility in Billings, Montana. 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. Beginning June 1, 2023, we maintain ownership in distribution and logistics assets in the upper Rockies region, including the wholly owned Silvertip Pipeline, a 40 % interest in the Yellowstone refined products pipeline, and four wholly owned and three joint venture refined product terminals. As of June 30, 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. As noted in the Refining and Logistics discussions above, as of June 30, 2023 through the Billings Acquisition (as defined in Note 5—Acquisitions), we own a 65 % and a 40 % equity investment in Yellowstone Energy Limited Partnership, (“YELP”) and Yellowstone Pipeline Company (“YPLC”), respectively. Our Corporate and Other reportable segment primarily includes general and administrative costs and certain development expenses associated with our renewable fuel initiatives. 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. 6 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 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 and six months ended June 30, 2023 or 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”) and other environmental credit 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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 Cost of revenues $ 5,022 $ 5,175 $ 10,021 $ 10,227 Operating expense 16,153 13,183 28,557 26,080 General and administrative expense 578 771 1,080 1,419 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— Refining and Logistics Equity Investments Yellowstone Energy Limited Partnership On June 1, 2023, we completed the Billings Acquisition (as defined in Note 5—Acquisitions) and acquired a 65 % limited partnership ownership interest in YELP. YELP owns a cogeneration facility in Billings, Montana, that converts petroleum coke, supplied from our Montana refinery and other nearby third-party refineries, into power production for the local utility grid. As of June 30, 2023, our investment in YELP was $ 58.0 million. We account for our investment in YELP using the equity method as we have the ability to exert significant influence over, but do not control its operating and financial policies. Our proportionate share of YELP’s net income (loss) will be recorded on a one-month lag basis and included in Equity (earnings) from refining and logistics investments on our condensed consolidated statements of operations. Yellowstone Pipeline Company On June 1, 2023, we completed the Billings Acquisition (as defined in Note 5—Acquisitions) and acquired a 40 % ownership interest in YPLC. YPLC owns a refined products pipeline that begins at our Montana refinery and transports refined product to Montana and the Pacific Northwest. As of June 30, 2023, our investment in YPLC was $ 26.4 million. We account for our ownership interest in YPLC using the equity method as we have the ability to exert significant influence over, but do not control its operating and financial policies. Our proportionate share of YPLC’s net income of $ 0.4 million for the three and six months ended June 30, 2023 is included in Equity (earnings) from refining and logistics investments on our condensed 7 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 consolidated statements of operations. Additionally, on June 28, 2023, YPLC made a cash dividend to its shareholders, of which our proportionate share was $ 2.6 million. Note 4— Investment in Laramie Energy Laramie Energy As of June 30, 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 June 30, 2023 and December 31, 2022. Prior to February 21, 2023, 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 June 30, 2023, the term loan had an outstanding balance of $ 155.0 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 June 30, 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. Note 5— Acquisitions Billings Acquisition On October 20, 2022, we and our subsidiaries Par Montana, LLC (“Par Montana”), Par Montana Holdings, LLC (“Par Montana Holdings”), and Par Rocky Mountain Midstream, LLC (“Par Rocky Mountain”, and together with Par Montana and Par Montana Holdings, 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, (ii) the Sellers’ 65 % limited partnership equity interest in YELP, and (iii) the Sellers’ 40 % equity interest in YPLC 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 Billings Acquisition enhances our fully integrated downstream network in the upper Rockies and Pacific Northwest. The Billings Acquisition increases scale and geographic diversification on the U.S. mainland and allows for efficient access to alternative markets. On June 1, 2023, we completed the Billings Acquisition for a total purchase price of approximately $ 638.2 million (before consideration of the preliminary working capital adjustment), consisting of a cash deposit of $ 30.0 million paid on October 20, 2022 upon execution of the Purchase Agreement and $ 608.2 million paid at closing on June 1, 2023. The preliminary working capital adjustment is $ 12.7 million, which will reduce the total purchase price. The Company funded the Billings Acquisition with cash on hand and borrowings from the ABL Credit Facility (as defined in Note 11—Debt) under the ABL Credit Facility (as defined in Note 11—Debt). 8 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 We accounted for the Billings Acquisition as a business combination whereby the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. A summary of the preliminary fair value of the assets acquired and liabilities assumed is as follows (in thousands): Trade accounts receivable $ 2,395 Inventories 299,228 Property, plant, and equipment 259,088 Operating lease right-of-use assets 3,562 Investment in refining and logistics subsidiaries 86,600 Other long-term assets 4,094 Total assets (1) 654,967 Current operating lease liabilities 2,081 Other current liabilities 7,056 Environmental liabilities 18,869 Long-term operating lease liabilities 1,481 Total liabilities 29,487 Total $ 625,480 _______________________________________________________ (1) We allocated $ 531.7 million and $ 123.3 million of total assets to our refining and logistics segments, respectively. We have recorded a preliminary estimate of the fair value of the assets acquired and liabilities assumed and expect to finalize the purchase price allocation during the first part of 2024. The primary areas of the purchase price allocation that are not finalized as of June 30, 2023 relate to inventory, property, plant, and equipment, and the environmental liabilities. Any final valuation adjustments could change the fair values assigned to the assets acquired and liabilities assumed, resulting in a change to our condensed consolidated financial statements, which could be material. We incurred $ 5.1 million and $ 10.4 million of acquisition costs related to the Billings Acquisition for the three and six months ended June 30, 2023, respectively. These costs are included in Acquisition and integration costs on our condensed consolidated statements of operations. We assumed certain environmental liabilities associated with the Billings Acquisition, including costs related to hazardous waste corrective measures, ground and surface water sampling and monitoring. We expect to incur these costs over a 20 to 30 year period. The results of operations of the Montana refinery, newly acquired logistics assets in the Rockies region, and YELP and YPLC equity investments were included in our results beginning on June 1, 2023. For both of the three and six months ended June 30, 2023, our results of operations included revenues of $ 217.2 million and a net loss of $ 15.6 million related to these assets. The following unaudited pro forma financial information presents our consolidated revenues and net income (loss) as if the Billings Acquisition had been completed on January 1, 2022 (in thousands): Six Months Ended June 30, 2023 2022 Revenues $ 4,410,002 $ 4,733,450 Net income (loss) 419,113 ( 80,237 ) These pro forma results were based on estimates and assumptions that we believe are reasonable. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have been achieved had the Billings Acquisition been effective as of the dates presented, nor is it indicative of future operating results of the combined company. Pro forma adjustments include (i) incremental depreciation resulting from the estimated fair value of property, plant, and equipment acquired, (ii) transaction costs which were shifted from the six months ended June 30, 2023 to the six months ended June 30, 2022 and (iii) elimination of historical transactions between Par and the Montana assets. 9 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 Note 6— Revenue Recognition As of June 30, 2023 and December 31, 2022, receivables from contracts with customers were $ 367.7 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 $ 14.2 million and $ 11.5 million as of June 30, 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 June 30, 2023 Refining Logistics Retail Product or service: Gasoline $ 603,598 $ — $ 109,265 Distillates (1) 700,048 — 12,368 Other refined products (2) 404,619 — — Merchandise — — 25,892 Transportation and terminalling services — 64,709 — Other revenue 276 — 871 Total segment revenues (3) $ 1,708,541 $ 64,709 $ 148,396 Three Months Ended June 30, 2022 Refining Logistics Retail Product or service: Gasoline $ 614,942 $ — $ 112,231 Distillates (1) 896,601 — 11,224 Other refined products (2) 526,854 — — Merchandise — — 22,907 Transportation and terminalling services — 50,633 — Other revenue 6,058 — 849 Total segment revenues (3) $ 2,044,455 $ 50,633 $ 147,211 Six Months Ended June 30, 2023 Refining Logistics Retail Product or service: Gasoline $ 1,053,922 $ — $ 209,453 Distillates (1) 1,479,101 — 23,967 Other refined products (2) 790,228 — — Merchandise — — 48,720 Transportation and terminalling services — 117,097 — Other revenue 702 — 1,828 Total segment revenues (3) $ 3,323,953 $ 117,097 $ 283,968 10 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 Six Months Ended June 30, 2022 Refining Logistics Retail Product or service: Gasoline $ 1,016,051 $ — $ 202,006 Distillates (1) 1,484,684 — 19,734 Other refined products (2) 830,461 — — Merchandise — — 43,722 Transportation and terminalling services — 93,094 — Other revenue 12,482 — 1,658 Total segment revenues (3) $ 3,343,678 $ 93,094 $ 267,120 _______________________________________________________ (1) Distillates primarily include diesel and jet fuel. (2) Other refined products include fuel oil, vacuum gas oil, and asphalt. (3) Refer to Note 19—Segment Information for the reconciliation of segment revenues to total consolidated revenues. Note 7— Inventories Inventories at June 30, 2023 and December 31, 2022 consisted of the following (in thousands): Titled Inventory Supply and Offtake Agreement (1) Total June 30, 2023 Crude oil and feedstocks $ 152,175 $ 216,782 $ 368,957 Refined products and blendstock 337,097 158,509 495,606 Warehouse stock and other (2) 376,931 — 376,931 Total $ 866,203 $ 375,291 $ 1,241,494 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 9—Inventory Financing Agreements for further information. (2) Includes $ 293.3 million and $ 258.2 million of RINs and environmental credits, reported at the lower of cost or net realizable value, as of June 30, 2023 and December 31, 2022, respectively. RINs and environmental credit obligations of $ 433.0 million and $ 549.8 million, reported at market value, are included in Other accrued liabilities on our condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively. If we marked our RINs and environmental credits to fair market value, our net environmental credit obligations would have been $ 100.9 million and $ 152.6 million as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022, there was no reserve for the lower of cost or net realizable value of inventory. As of June 30, 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 $ 41.1 million and $ 46.4 million, respectively. 11 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 Note 8— Prepaid and Other Current Assets Prepaid and other current assets at June 30, 2023 and December 31, 2022 consisted of the following (in thousands): June 30, 2023 December 31, 2022 Collateral posted with broker for derivative instruments (1) $ 29,973 $ 40,788 Billings Acquisition deposit (2) — 30,000 Prepaid insurance 7,718 15,639 Other 17,123 5,616 Total $ 54,814 $ 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 12—Derivatives for further information. (2) Please read Note 5—Acquisitions for further information. Note 9— Inventory Financing Agreements The following table summarizes our outstanding obligations under our inventory financing agreements (in thousands): June 30, 2023 December 31, 2022 Supply and Offtake Agreement $ 568,670 $ 732,511 Washington Refinery Intermediation Agreement 214,952 160,554 Obligations under inventory financing agreements $ 783,622 $ 893,065 Supply and Offtake Agreement Under the Second Amended and Restated Supply and Offtake Agreement (as amended, the “Supply and Offtake Agreement”), J. Aron & Company LLC (“J. Aron”) finances the majority of the crude oil utilized at the Hawaii refinery, holds legal title to the crude oil stored in our storage tanks before processing until title passes to us at the tank outlet, and buys refined products produced at our Hawaii refinery, after which we repurchase the refined products prior to selling them to our retail locations or third parties. Under the Supply and Offtake Agreement, J. Aron may enter into agreements with third parties whereby J. Aron remits payments to these third parties for refinery procurement contracts for which we will become immediately obligated to reimburse J. Aron. 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. On February 13, 2023, we entered into an amendment to the Supply and Offtake Agreement to, among other things, facilitate entry into the Term Loan Credit Agreement. On June 21, 2023, we entered into an amendment (the June “2023 S&O Amendment”) to establish the Secured Overnight Financing Rate ("SOFR"), as defined in the Supply and Offtake Agreement, as the benchmark rate in replacement of the London Interbank Offered Rate ("LIBOR") and revise certain other terms and conditions, effective July 1, 2023. 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. For the three and six months ended June 30, 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 June 30, 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 and six months ended June 30, 2023. We recognized fixed market fees of $ 1.6 million and $ 8.8 million for the three and six months ended June 30, 2022, respectively, which were included in Cost of revenues (excluding 12 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 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 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 SOFR rate as the benchmark rate in replacement of the LIBOR rate 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, and on April 26, 2023, we and MLC amended the Washington Refinery Intermediation Agreement to facilitate entry into the ABL Credit Facility. The following table summarizes our outstanding borrowings, letters of credit, and contractual undertaking obligations under the intermediation agreements (in thousands): June 30, 2023 December 31, 2022 Discretionary Draw Facility Outstanding borrowings (1) $ 146,157 $ 204,843 Borrowing capacity 146,157 204,843 MLC receivable advances Outstanding borrowings (1) 83,882 56,601 Borrowing capacity 83,882 56,601 MLC issued letters of credit 75,830 115,001 ______________________________________________________ (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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net fees and expenses: Supply and Offtake Agreement Inventory intermediation fees (1) $ 12,628 $ 28,522 $ 26,627 $ 39,445 Interest expense and financing costs, net 1,895 1,858 3,620 3,102 Washington Refinery Intermediation Agreement Inventory intermediation fees $ 750 $ 750 $ 1,500 $ 1,500 Interest expense and financing costs, net 3,313 2,943 5,972 4,897 ___________________________________________________ (1) Inventory intermediation fees under the Supply and Offtake Agreement include market structure fees of $ 1.8 million and $ 19.4 million for the three months ended June 30, 2023 and 2022 and $ 4.2 million and $ 23.8 million for the six months ended June 30, 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 12—Derivatives for further information. 13 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 Note 10— Other Accrued Liabilities Other accrued liabilities at June 30, 2023 and December 31, 2022 consisted of the following (in thousands): June 30, 2023 December 31, 2022 Accrued payroll and other employee benefits $ 22,617 $ 27,815 Gross environmental credit obligations (1) 433,031 549,791 Other 57,483 62,888 Total $ 513,131 $ 640,494 ___________________________________________________ (1) Gross environmental credit obligations are stated at market as of June 30, 2023 and December 31, 2022. Please read Note 13—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 $ 293.3 million and $ 258.2 million as of June 30, 2023 and December 31, 2022, respectively. If we marked our RINs and environmental credits to fair market value, our net environmental credit obligations at market value would have been $ 100.9 million and $ 152.6 million as of June 30, 2023 and December 31, 2022, respectively. Note 11— Debt The following table summarizes our outstanding debt (in thousands): June 30, 2023 December 31, 2022 ABL Credit Facility due 2028 $ 41,000 $ — Term Loan Credit Agreement due 2030 548,625 — 7.75 % Senior Secured Notes due 2025 — 281,000 Term Loan B Facility due 2026 — 203,125 12.875 % Senior Secured Notes due 2026 — 31,314 Other long-term debt 5,058 — Principal amount of long-term debt 594,683 515,439 Less: unamortized discount and deferred financing costs ( 15,568 ) ( 9,907 ) Total debt, net of unamortized discount and deferred financing costs 579,115 505,532 Less: current maturities, net of unamortized discount and deferred financing costs ( 4,353 ) ( 10,956 ) Long-term debt, net of current maturities $ 574,762 $ 494,576 As of June 30, 2023, we had $ 215.0 million in letters of credit outstanding under the ABL Credit Facility, as defined below. As of December 31, 2022, we had $ 19.5 million in letters of credit outstanding under the Prior ABL Credit Facility, as defined below. We had $ 70.0 million and $ 5.9 million in cash-collateralized letters of credit and surety bonds outstanding as of June 30, 2023 and December 31, 2022, respectively, under agreements with MLC and under certain other facilities. Under the ABL Credit Facility and the Term Loan Credit Agreement, defined below, our subsidiaries are restricted from paying dividends or making other equity distributions, subject to certain exceptions. ABL Credit Facility due 2028 On April 26, 2023, in connection with the Billings Acquisition, we repaid in full and terminated the loan and security agreements with certain lenders and Bank of America, N.A., as administrative agent and collateral agent (as amended from time to time, “Prior ABL Credit Facility”) and entered into an Asset-Based Revolving Credit Agreement with certain lenders, and Wells Fargo Bank, National Association, as administrative agent and collateral agent (as amended from time to time, the “ABL Credit Facility”), providing for a senior secured asset-based revolving credit facility in an initial aggregate principal amount of up to $ 150 million and secured by a first priority lien over certain of our assets and other personal property, subject to certain customary exceptions. 14 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 In accordance with ASC Topic 470, "Debt", we accounted for the ABL Credit Facility as a debt m odification and unamortized deferred financing costs/modification costs o f $ 0.7 million were rolled into the ABL Credit Facility which will be amortized over the remaining term of the ABL Credit Facility . On May 30, 2023, the ABL Credit Facility was amended (“ABL Credit Facility Billings Amendment”) in order to, among other things, increase the principal amount to $ 450 million, adjust the borrowing base to account for the Billings Acquisition assets, and fund an escrow account to purchase a portion of the hydrocarbon inventory associated with the Billings Acquisition. Initially the ABL Credit Facility permitted the issuance of letters of credit of up to $ 65 million, with the ABL Credit Facility Billings Amendment this amount increased to $ 250 million. The ABL Credit Facility will mature, and the commitments thereunder will terminate on April 26, 2028. As of June 30, 2023, the ABL Credit Facility had $ 41.0 million outstanding revolving loans , $ 215.0 million in letters of credit outstanding, and a borrowing base of approxi mately $ 531.0 million. The interest rates applicable to borrowings under the ABL Credit Facility is based on a fluctuating rate of interest measured by reference to either, at our option, (i) a base rate, plus an applicable margin, or (ii) an Adjusted Term SOFR rate, 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 Facility. The ABL Credit Facility includes certain customary affirmative and negative covenants, including a minimum financial fixed charge coverage ratio and a minimum Borrower Group Fixed Charge Coverage Ratio. In addition, the covenants limit 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. 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 and six months June 30, 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”). 15 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 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 six months ended June 30, 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 six months ended June 30, 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 with unamortized deferred financing costs, which were recorded in Debt extinguishment and commitment costs on our condensed consolidated statement of operations for the six months ended June 30, 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. Other long-term debt On June 7, 2023, we entered into two promissory notes with a third-party lender to acquire land in Kahului, Hawaii, and Hilo, Hawaii totaling $ 5.1 million. The notes bear interest at a fixed rate of 4.625 % per annum and are payable on the first day of each month, commencing on July 1, 2023, until maturity. The promissory notes are unsecured and mature on June 7, 2030. 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 June 30, 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 16 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 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 12— Derivatives Commodity Derivatives Our condensed consolidated balance sheets present derivative assets and liabilities on a net basis. Please read Note 13—Fair Value Measurements for the gross fair value and net carrying value of our derivative instruments. Our open futures and over-the-counter (“OTC”) swaps at June 30, 2023, will settle by December 2024. At June 30, 2023, our open commodity derivative contracts represented (in thousands of barrels): Contract Type Purchases Sales Net Futures 45,493 ( 45,912 ) ( 419 ) Swaps 6,548 ( 10,294 ) ( 3,746 ) Total 52,041 ( 56,206 ) ( 4,165 ) At June 30, 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 June 30, 2023: 2023 2024 Average barrels per month 166,667 148,168 Weighted-average strike price - floor (in dollars) $ 65.49 $ 60.95 Weighted-average strike price - ceiling (in dollars) $ 88.19 $ 83.20 Earliest commencement date July 2023 January 2024 Furthest expiry date December 2023 June 2024 Interest Rate Derivatives We are exposed to interest rate volatility in our ABL Credit Facility, 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. On April 12, 2023, we entered into an interest rate collar transaction to manage our interest rate risk on the Term Loan Credit Agreement. The interest rate collar agreement reduces variable interest rate risk from May 31, 2023, through May 31, 2026, with a notional amount of $ 300.0 million as of June 30, 2023. The terms of the agreement provide for an interest rate cap of 5.50 % and floor of 2.295 %, based on the three month SOFR as of the fixing date. We pay variable interest quarterly until the three month SOFR reaches the floor. If the three month SOFR is between the floor and the cap, no payment is due to either party. If the three month SOFR is greater than the cap, the counterparty pays us. The interest rate collar transaction expires on May 31, 2026. As of December 31, 2022, we did not hold any interest rate derivative instruments. The following table provides information on the fair value amounts (in thousands) of these derivatives as of June 30, 2023 and December 31, 2022, and their placement within our condensed consolidated balance sheets. Balance Sheet Location June 30, 2023 December 31, 2022 Asset (Liability) Commodity derivatives (1) Prepaid and other current assets $ — $ 495 Commodity derivatives Other accrued liabilities ( 18,659 ) ( 10,989 ) Commodity derivatives Other liabilities ( 199 ) — J. Aron repurchase obligation derivative Obligations under inventory financing agreements ( 6,628 ) ( 12,156 ) MLC terminal obligation derivative Obligations under inventory financing agreements 1,044 14,435 Interest rate derivatives Other long-term assets 543 — 17 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 _________________________________________________________ (1) Does not include cash collateral of $ 30.0 million and $ 40.8 million recorded in Prepaid and other current assets as of June 30, 2023 and December 31, 2022, respectively, and $ 9.5 million in Other long-term assets as of both June 30, 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 June 30, Six Months Ended June 30, Statement of Operations Location 2023 2022 2023 2022 Commodity derivatives Cost of revenues (excluding depreciation) $ ( 6,104 ) $ ( 39,024 ) $ ( 6,728 ) $ ( 57,478 ) J. Aron repurchase obligation derivative Cost of revenues (excluding depreciation) ( 7,852 ) 13,229 5,528 ( 30,040 ) MLC terminal obligation derivative Cost of revenues (excluding depreciation) 20,490 ( 25,796 ) 3,467 ( 90,192 ) Interest rate derivatives Interest expense and financing costs, net 543 — 543 — Note 13— Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Purchase Price Allocation of Billings Acquisition The preliminary fair values of the assets acquired and liabilities assumed as a result of the Billings Acquisition were estimated as of June 1, 2023, the date of the acquisition, using valuation techniques described in notes (1) through (5) below. Valuation Fair Value Technique (in thousands) Net working capital excluding operating leases $ 294,567 (1) Property, plant, and equipment 259,088 (2) Operating lease right-of-use assets 3,562 (3) Refining and logistics equity investments 86,600 (4) Other long-term assets 4,094 (1) Current operating lease liabilities ( 2,081 ) (3) Long-term operating lease liabilities ( 1,481 ) (3) Environmental liabilities ( 18,869 ) (5) Total $ 625,480 (1) Current assets acquired and liabilities assumed were recorded at their net realizable value. Other long-term assets includes preliminary costs for future turnarounds that were recently incurred and were recorded at their net realizable value. (2) The fair value of personal property was estimated using the cost approach. Key assumptions in the cost approach include determining the replacement cost by evaluating recent purchases of comparable assets or published data, and adjusting replacement cost for economic and functional obsolescence, location, normal useful lives, and capacity (if applicable). The fair value of real property was estimated using the market approach. Key assumptions in the market approach include determining the asset value by evaluating recent purchases of comparable assets under similar circumstances. We consider this to be a Level 3 fair value measurement. (3) Operating lease right-of-use assets and liabilities were recognized based on the present value of lease payments over the lease term using the incremental borrowing rate at acquisition of 9.6 %. 18 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 (4) The fair value of our investments in YELP and YPLC were determined using a combination of the income approach and the market approach. Under the income approach, we estimated the present value of expected future cash flows using a market participant discount rate. Under the market approach, we estimated fair value using observable multiples for comparable companies in the investments’ industries. 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. We consider this to be a Level 3 fair value measurement. (5) Environmental liabilities are based on management’s best estimates of probable future costs using currently available information. We consider this to be a Level 3 fair value measurement. 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 $ 11.09 , and range from a discount of $ 5.64 per barrel to a premium of $ 48.39 per barrel as of June 30, 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 June 30, 2023, or December 31, 2022. Please read Note 12—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 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 15—Commitments and Contingencies for further information on the EPA and the State of Washington’s regulations related to greenhouse gases. 19 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 Financial Statement Impact Fair value amounts by hierarchy level as of June 30, 2023 and December 31, 2022, are presented gross in the tables below (in thousands): June 30, 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 $ 167,336 $ 11,944 $ — $ 179,280 $ ( 179,280 ) $ — Interest rate derivatives — 543 — 543 — 543 Total $ 167,336 $ 12,487 $ — $ 179,823 $ ( 179,280 ) $ 543 Liabilities Commodity derivatives $ ( 178,093 ) $ ( 20,045 ) $ — $ ( 198,138 ) $ 179,280 $ ( 18,858 ) J. Aron repurchase obligation derivative — — ( 6,628 ) ( 6,628 ) — ( 6,628 ) MLC terminal obligation derivative — — 1,044 1,044 — 1,044 Gross environmental credit obligations (2) — ( 433,031 ) — ( 433,031 ) — ( 433,031 ) Total liabilities $ ( 178,093 ) $ ( 453,076 ) $ ( 5,584 ) $ ( 636,753 ) $ 179,280 $ ( 457,473 ) 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 $ 39.5 million and $ 50.3 million as of June 30, 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 $ 293.3 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 June 30, 2023 and December 31, 2022, respectively. 20 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 Balance, at beginning of period $ ( 5,979 ) $ ( 52,678 ) $ 2,279 $ ( 37,321 ) Settlements ( 12,243 ) 56,753 ( 16,858 ) 149,061 Total gains (losses) included in earnings (1) 12,638 ( 12,567 ) 8,995 ( 120,232 ) Balance, at end of period $ ( 5,584 ) $ ( 8,492 ) $ ( 5,584 ) $ ( 8,492 ) _________________________________________________________ (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 June 30, 2023 and December 31, 2022 are as follows (in thousands): June 30, 2023 Carrying Value Fair Value ABL Credit Facility due 2028 (2) 41,000 41,000 Term Loan Credit Agreement due 2030 (1) 533,057 536,994 Other long-term debt (1) 5,058 4,829 7.75 % Senior Secured Notes due 2025 (1) (3) — — Term Loan B Facility due 2026 (1) (3) — — 12.875 % Senior Secured Notes due 2026 (1) (3) — — December 31, 2022 Carrying Value Fair Value Prior 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, Other long-term debt, 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 and the Prior ABL Credit Facility is considered a Level 3 measurement in the fair value hierarchy. (3) The 7.75 % Senior Secured Notes, Term Loan B Facility, and 12.875 % Senior Secured Notes were fully repaid in 2023, please read Note 11—Debt for more information. The fair value of the Term Loan Credit Agreement, Other long-term debt, 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, Other long-term debt, 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 June 30, 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 14— 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 21 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 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. The following table provides information on the amounts (in thousands) of our right-of-use assets (“ROU assets”) and liabilities as of June 30, 2023 and December 31, 2022 and their placement within our condensed consolidated balance sheets: Lease type Balance Sheet Location June 30, 2023 December 31, 2022 Assets Finance Property, plant, and equipment $ 22,095 $ 21,150 Finance Accumulated amortization ( 11,251 ) ( 10,308 ) Finance Property, plant, and equipment, net $ 10,844 $ 10,842 Operating Operating lease right-of-use assets 330,864 350,761 Total right-of-use assets $ 341,708 $ 361,603 Liabilities Current Finance Other accrued liabilities $ 1,659 $ 1,782 Operating Operating lease liabilities 69,053 66,081 Long-term Finance Finance lease liabilities 6,509 6,311 Operating Operating lease liabilities 270,964 292,701 Total lease liabilities $ 348,185 $ 366,875 The following table summarizes the weighted-average lease terms and discount rates of our leases as of June 30, 2023 and December 31, 2022: June 30, 2023 December 31, 2022 Weighted-average remaining lease term (in years) Finance 5.76 5.60 Operating 8.96 9.00 Weighted-average discount rate Finance 7.58 % 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 June 30, Six Months Ended June 30, Lease cost (income) type 2023 2022 2023 2022 Finance lease cost Amortization of finance lease ROU assets $ 473 $ 484 $ 946 $ 968 Interest on lease liabilities 145 162 292 323 Operating lease cost 24,421 21,993 48,290 44,247 Variable lease cost 3,121 1,491 4,563 2,737 Short-term lease cost 2,869 1,359 5,496 2,345 Net lease cost $ 31,029 $ 25,489 $ 59,587 $ 50,620 Operating lease income (1) $ ( 3,848 ) $ ( 3,219 ) $ ( 7,275 ) $ ( 4,065 ) _________________________________________________________ (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. 22 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 The following table summarizes the supplemental cash flow information related to leases as follows (in thousands): Six Months Ended June 30, Lease type 2023 2022 Cash paid for amounts included in the measurement of liabilities Financing cash flows from finance leases $ 899 $ 761 Operating cash flows from finance leases 287 311 Operating cash flows from operating leases 48,594 42,901 Non-cash supplemental amounts ROU assets obtained in exchange for new finance lease liabilities 944 594 ROU assets obtained in exchange for new operating lease liabilities 16,684 13,692 ROU assets terminated in exchange for release from operating lease liabilities — 32,902 The table below includes the estimated future undiscounted cash flows for finance and operating leases as of June 30, 2023 (in thousands): For the year ending December 31, Finance leases Operating leases Total 2023 (1) $ 1,156 $ 49,047 $ 50,203 2024 2,000 78,717 80,717 2025 2,031 53,658 55,689 2026 1,563 47,025 48,588 2027 1,334 44,417 45,751 2028 572 41,528 42,100 Thereafter 1,642 123,092 124,734 Total lease payments 10,298 437,484 447,782 Less amount representing interest ( 2,130 ) ( 97,467 ) ( 99,597 ) Present value of lease liabilities $ 8,168 $ 340,017 $ 348,185 _________________________________________________________ (1) Represents the period from July 1, 2023 to December 31, 2023. Additionally, we have $ 3.8 million and $ 18.5 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 15— Commitments and Contingencies In the ordinary course of business, we are a party to various lawsuits and other contingent matters. Additionally, we assumed certain liabilities associated with the Billings Acquisition. Please read Note 5—Acquisitions for further information. 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 23 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 unspecified damages, penalties, interest and injunctive relief. We dispute the allegations in the complaint and intend to vigorously defend ourselves in such proceeding. We believe the likelihood of an unfavorable outcome in these matters to be neither probable nor reasonably estimable. Environmental Matters Like other petroleum refiners, our operations are subject to extensive and periodically-changing federal, state, and local environmental laws and regulations governing air emissions, wastewater discharges, and solid and hazardous waste 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 June 30, 2023, we have accrued $ 14.5 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 24 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 on Form 10-K for the year ended December 31, 2022. As of June 30, 2023, our estimate of the renewable volume obligation (“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 six months ended June 30, 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 June 30, 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 16— 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 and six months ended June 30, 2023, 110 thousand shares in total were repurchased under this share repurchase program for $ 2.6 million. During the six months ended June 30, 2022, 362 thousand shares were repurchased under this share repurchase program for $ 5 million. No shares were repurchased during the three months ended June 30, 2022. The repurchased shares were retired by the Company upon receipt. As of June 30, 2023, there was $ 43.3 million of authorization remaining under this share repurchase program. On August 2, 2023, the Board approved expanding the Company’s share repurchase authorization from $ 50 million to $ 250 million. 25 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 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 June 30, Six months ended June 30, 2023 2022 2023 2022 Restricted Stock Awards $ 2,656 $ 1,153 $ 4,052 $ 2,902 Restricted Stock Units 477 338 984 1,011 Stock Option Awards 523 525 937 1,761 During the three and six months ended June 30, 2023, we granted 102 thousand and 405 thousand shares of restricted stock and restricted stock units with a fair value of approximately $ 2.3 million. As of June 30, 2023, there were approximately $ 15.0 million of total unrecognized compensation costs related to restricted stock awards and restricted stock units, which are expected to be recognized on a straight-line basis over a weighted-average period of 1.7 years. During the six months ended June 30, 2023, we granted no stock option awards. As of June 30, 2023, there were approximately $ 2.8 million of total unrecognized compensation costs related to stock option awards, which are expected to be recognized on a straight-line basis over a weighted-average period of 1.6 years. During the six months ended June 30, 2023, we granted 90 thousand performance restricted stock units to executive officers, but no grants were made for the three months ended June 30, 2023. These performance restricted stock units had a fair value of approximately $ 2.5 million and are subject to certain annual performance targets based on three-year -performance periods as defined by our Board of Directors. As of June 30, 2023, there were approximately $ 2.6 million of total unrecognized compensation costs related to the performance restricted stock units, which are expected to be recognized on a straight-line basis over a weighted-average period of 2.4 years. Note 17— 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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net income $ 30,013 $ 149,125 $ 267,903 $ 12,074 Plus: Net income effect of convertible securities — — — — Numerator for diluted income per common share $ 30,013 $ 149,125 $ 267,903 $ 12,074 Basic weighted-average common stock shares outstanding 60,399 59,479 60,255 59,449 Plus: dilutive effects of common stock equivalents 594 163 765 195 Diluted weighted-average common stock shares outstanding 60,993 59,642 61,020 59,644 Basic income per common share $ 0.50 $ 2.51 $ 4.45 $ 0.20 Diluted income per common share $ 0.49 $ 2.50 $ 4.39 $ 0.20 Diluted income (loss) per common share excludes the following equity instruments because their effect would be anti-dilutive: Shares of unvested restricted stock 321 247 254 439 Shares of stock options 108 2,402 54 2,404 26 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 Note 18— 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 June 30, 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 June 30, 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 19— Segment Information We report the results for the following four reportable segments: (i) Refining, (ii) Retail, (iii) Logistics, and (iv) Corporate and Other. Commencing June 1, 2023, the results of operations of the Billings Acquisition are included in our refining and logistics segments. Summarized financial information concerning reportable segments consists of the following (in thousands): Three Months Ended June 30, 2023 Refining Logistics Retail Corporate, Eliminations and Other (1) Total Revenues $ 1,708,541 $ 64,709 $ 148,396 $ ( 137,719 ) $ 1,783,927 Cost of revenues (excluding depreciation) 1,567,605 35,788 109,168 ( 137,755 ) 1,574,806 Operating expense (excluding depreciation) 76,971 3,596 21,276 — 101,843 Depreciation and amortization 19,826 5,059 2,732 599 28,216 General and administrative expense (excluding depreciation) — — — 23,168 23,168 Equity earnings from refining and logistics investments — ( 425 ) — — ( 425 ) Acquisition and integration costs — — — 7,273 7,273 Par West redevelopment and other costs — — — 2,613 2,613 Operating income (loss) $ 44,139 $ 20,691 $ 15,220 $ ( 33,617 ) $ 46,433 Interest expense and financing costs, net ( 14,909 ) Debt extinguishment and commitment costs 38 Other income, net 379 Income before income taxes 31,941 Income tax expense ( 1,928 ) Net income $ 30,013 Capital expenditures $ 6,301 $ 7,124 $ 3,104 $ 987 $ 17,516 27 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 Three Months Ended June 30, 2022 Refining Logistics Retail Corporate, Eliminations and Other (1) Total Revenues $ 2,044,455 $ 50,633 $ 147,211 $ ( 135,967 ) $ 2,106,332 Cost of revenues (excluding depreciation) 1,799,577 25,739 119,642 ( 136,033 ) 1,808,925 Operating expense (excluding depreciation) 57,624 3,797 19,444 — 80,865 Depreciation and amortization 16,979 5,211 2,600 793 25,583 Loss (gain) on sale of assets, net — ( 12 ) — 27 15 General and administrative expense (excluding depreciation) — — — 15,438 15,438 Par West redevelopment and other costs 1,477 — — — 1,477 Operating income (loss) 168,798 15,898 5,525 ( 16,192 ) 174,029 Interest expense and financing costs, net ( 18,154 ) Debt extinguishment and commitment costs ( 5,672 ) Other income, net 47 Income before income taxes 150,250 Income tax expense ( 1,125 ) Net income $ 149,125 Capital expenditures $ 8,666 $ 2,177 $ 1,508 $ 336 $ 12,687 ________________________________________________________ (1) Includes eliminations of intersegment revenues and cost of revenues of $ 137.7 million and $ 136.0 million for the three months ended June 30, 2023 and 2022, respectively. Six Months Ended June 30, 2023 Refining Logistics Retail Corporate, Eliminations and Other (1) Total Revenues $ 3,323,953 $ 117,097 $ 283,968 $ ( 255,882 ) $ 3,469,136 Cost of revenues (excluding depreciation) 2,845,275 67,087 207,396 ( 255,932 ) 2,863,826 Operating expense (excluding depreciation) 135,853 7,043 42,067 — 184,963 Depreciation and amortization 35,549 10,093 5,811 1,123 52,576 General and administrative expense (excluding depreciation) — — — 42,454 42,454 Equity earnings from refining and logistics investments — ( 425 ) — — ( 425 ) Acquisition and integration costs — — — 12,544 12,544 Par West redevelopment and other costs — — — 5,363 5,363 Operating income (loss) $ 307,276 $ 33,299 $ 28,694 $ ( 61,434 ) $ 307,835 Interest expense and financing costs, net ( 31,159 ) Debt extinguishment and commitment costs ( 17,682 ) Other income, net 344 Equity earnings from Laramie Energy, LLC 10,706 Income before income taxes 270,044 Income tax expense ( 2,141 ) Net income $ 267,903 Capital expenditures $ 13,955 $ 8,005 $ 7,254 $ 1,515 $ 30,729 28 PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements For the Interim Periods Ended June 30, 2023 and 2022 Six Months Ended June 30, 2022 Refining Logistics Retail Corporate, Eliminations and Other (1) Total Revenues $ 3,343,678 $ 93,094 $ 267,120 $ ( 247,267 ) $ 3,456,625 Cost of revenues (excluding depreciation) 3,143,492 49,488 213,484 ( 247,290 ) 3,159,174 Operating expense (excluding depreciation) 114,536 7,570 38,775 — 160,881 Depreciation and amortization 32,312 10,298 5,291 1,462 49,363 Loss (gain) on sale of assets, net — ( 12 ) — 27 15 General and administrative expense (excluding depreciation) — — — 31,331 31,331 Acquisition and integration costs — — — 63 63 Par West redevelopment and other costs 2,865 — — — 2,865 Operating income (loss) $ 50,473 $ 25,750 $ 9,570 $ ( 32,860 ) $ 52,933 Interest expense and financing costs, net ( 34,548 ) Debt extinguishment and commitment costs ( 5,672 ) Other income, net 49 Income before income taxes 12,762 Income tax expense ( 688 ) Net income $ 12,074 Capital expenditures $ 21,495 $ 3,910 $ 3,089 $ 526 $ 29,020 ________________________________________________________ (1) Includes eliminations of intersegment revenues and cost of revenues of $ 255.9 million and $ 247.3 million for the six months ended June 30, 2023 and 2022, respectively. Note 20— Subsequent Events LC Facility On July 26, 2023, PHR, as borrower, entered into an Uncommitted Credit Agreement (the “LC Facility Agreement”) whereby the lenders agree to consider making revolving credit loans and issuing and participating in letters of credit for the account of PHR in the maximum available amount of $ 120 million in the aggregate (the “LC Facility”) with the right to request an increase up to $ 350 million in the aggregate, subject to conditions. Letters of credit issued under the Uncommitted Facility are intended finance and provide credit support for certain of PHR’s purchases of crude oil from crude oil suppliers and proceeds of revolving credit loans may be used to pay suppliers when due. PHR has agreed to pay customary fees and commissions under this agreement. The LC Facility Agreement requires PHR to comply with various covenants including compliance with the minimum liquidity covenant as discussed below. Amendment to Second Amended and Restated Supply and Offtake Agreement On July 26, 2023, and in connection with entering into the LC Facility Agreement, PHR, Par Petroleum, as guarantor, and J. Aron entered into an Amendment to Second Amended and Restated Supply and Offtake Agreement. This amendment allows PHR to enter into a crude oil procurement contract supported by a letter of credit and have its purchases funded by J. Aron, subject to certain conditions. Under this amendment, PHR agrees that it shall not permit the liquidity of PHR for any three consecutive business days to be less than $ 15 million at any time, with at least $ 15 million of such liquidity consisting of cash and cash equivalents. 29