Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
Our earnings, cash flows, and liquidity are significantly affected by commodity price volatility. Our Revenues fluctuate with refined product prices and our Cost of revenues (excluding depreciation) fluctuate with movements in crude oil and feedstock prices. Assuming all other factors remain constant, a $1 per barrel change in average gross refining margins, based on our throughput of 188 Mbpd for the full year of 2025, would change annualized Operating income by approximately $67.6 million. This analysis may differ from actual results.
We utilize exchange-traded futures, options, and over-the-counter (“OTC”) swaps to manage commodity price risks associated with:
• the price for which we sell our refined products;
• the price we pay for crude oil and other feedstocks;
• our crude oil and refined products inventory; and
• our fuel requirements for our refineries.
Substantially all of our futures and OTC swaps are executed to economically hedge our physical commodity purchases, sales, and inventory. Our open futures and OTC swaps will expire in March 2027.
Based on our net open futures positions at December 31, 2025, a $1 change in the price of crude oil, assuming all other factors remain constant, would result in a $5.9 million change to the fair value of our derivative instruments and Cost of revenues (excluding depreciation).
Our predominant variable operating cost is the cost of fuel consumed in the refining process, which is included in Cost of revenues (excluding depreciation) on our consolidated statements of operations. For the year ended December 31, 2025, we consumed approximately 188 Mbpd of crude oil during the refining process across all our refineries. We internally consumed approximately 4% of this throughput in the refining process, which is accounted for as a fuel cost. We have executed option collars to economically hedge our internally consumed fuel cost at all our refineries. Please read “Note 16—Derivatives” to our consolidated financial statements under Item 8 of this Form 10-K for more information.
Compliance Program Price Risk
We are exposed to market risks related to the volatility in the price of Renewable Identification Numbers (“RINs”) required to comply with the Renewable Fuel Standard (“the RFS”). Our RVO is based on a percentage of our Hawaii, Wyoming, Washington, and Montana refineries’ production of on-road transportation fuel. The U.S. Environmental Protection Agency (“EPA”) sets the RVO percentages annually. On June 21, 2023, the EPA finalized the 2023, 2024, and 2025 RVOs. To
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the degree we are unable to blend the required amount of biofuels to satisfy our RVO, we must purchase RINs on the open market. To mitigate the impact of this risk on our results of operations and cash flows, we may purchase RINs when the price of these instruments is deemed favorable. Some of these contracts are derivative instruments, however, we elect the normal purchases normal sales exception and do not record these contracts at their fair values.
On August 22, 2025, the EPA announced decisions on various exemption petitions for the 2016 – 2024 compliance years and granted full and partial relief to certain refineries owned by Par Pacific. As a result of our historical compliance with the RFS program, we received previously retired RINs related to the 2019 through 2023 compliance years from the EPA and relieved a portion of our 2024 RVO, recording a corresponding gain of $199.5 million in Net Income on our consolidated statements of operations for the year ended December 31, 2025. As of December 31, 2025, the EPA has not made a determination with respect to small refinery exemptions for the 2025 compliance year. Accordingly, our recorded RFS obligation for the year ended December 31, 2025, reflects 100% of the RFS obligation for the period with no assumption of small refinery exemption relief.
Additionally, we are exposed to market risks related to the volatility in the price of compliance credits required to comply with the Washington Climate Commitment Act (“Washington CCA”) and Clean Fuel Standard. To the extent we are unable to reduce the amount of greenhouse gas emissions in the transportation fuels we sell in Washington, we must purchase compliance credits at auction or in the open market. The number of credits required to comply with the Washington CCA and Clean Fuel Standard is based on the amount of greenhouse gas emissions in the transportation fuels we sell in Washington compared to certain regulatory limits. To mitigate the impact of this risk on our results of operations and cash flows, we may purchase credits when we deem the price to be favorable. Some of these contracts may be derivative instruments and recorded at their fair value. Please read “Note 16—Derivatives” to our consolidated financial statements under Item 8 of this Form 10-K for more information.
Interest Rate Risk
As of December 31, 2025, we had $808.6 million of indebtedness that was subject to floating interest rates. We also had interest rate exposure in connection with our liabilities under the Inventory Intermediation Agreement and Renewables Intermediation Agreement for which we pay charges based on the three-month Secured Overnight Financing Rate (“SOFR”). An increase of 1% in the variable rate on our indebtedness, after considering the instruments subject to minimum interest rates, would result in an increase to our Cost of revenues (excluding depreciation) and Interest expense and financing costs, net of approximately $1.8 million and $8.1 million per year, respectively.
We may utilize interest rate swaps to manage our interest rate risk. As of December 31, 2025, we had entered into multiple interest rate collars at a maximum cap of 5.50% and minimum floor of 2.30%, based on the three-month SOFR as of the fixing date. These swaps expires by May 31, 2029. Please read “Note 16—Derivatives” for more information.
Credit Risk
We are subject to the risk of loss resulting from nonpayment or nonperformance by our counterparties. We will continue to closely monitor the creditworthiness of customers to whom we grant credit and establish credit limits in accordance with our credit policy.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and schedule required by this item are set forth beginning on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.