ADAMS RESOURCES & ENERGY, INC. The following information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and accompanying Notes included in this quarterly report on Form 10-Q and the Audited Consolidated Financial Statements and related Notes, together with our discussion and analysis of financial position and results of operations, included in our annual report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K"), as filed onMarch 9, 2022 with theU.S. Securities and Exchange Commission ("SEC"). Our financial statements have been prepared in accordance with generally accepted accounting principles inthe United States ("GAAP").
Cautionary Statement Regarding Forward-Looking Information
This quarterly report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and information that are based on our beliefs, as well as assumptions made by us and information currently available to us. When used in this document, words such as "anticipate," "project," "expect," "plan," "seek," "goal," "estimate," "forecast," "intend," "could," "should," "would," "will," "believe," "may," "potential" and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we believe that our expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions as described in more detail under Part I, Item 1A of our 2021 Form 10-K. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. You should not put undue reliance on any forward-looking statements. The forward-looking statements in this quarterly report speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. Overview of BusinessAdams Resources & Energy, Inc. , aDelaware corporation organized in 1973, and its subsidiaries are primarily engaged in crude oil marketing, transportation, terminalling and storage in various crude oil and natural gas basins in the lower 48 states ofthe United States ("U.S."). We also conduct tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk primarily in the lower 48 states of theU.S. with deliveries intoCanada andMexico , and with twenty terminals across theU.S. We also recycle and repurpose off-specification fuels, lubricants, crude oil and other chemicals from producers in theU.S. Unless the context requires otherwise, references to "we," "us," "our" or the "Company" are intended to mean the business and operations ofAdams Resources & Energy, Inc. and its consolidated subsidiaries. We operate and report in four business segments: (i) crude oil marketing, transportation and storage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk; (iii) pipeline transportation, terminalling and storage of crude oil; and (iv) beginning in the third quarter of 2022, interstate bulk transportation logistics of crude oil, condensate, fuels, oils and other petroleum products and recycling and repurposing of off-spec fuels, lubricants, crude oil and other chemicals, which includes the businesses we acquired inAugust 2022 . See Note 6 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the businesses we acquired inAugust 2022 , and Note 8 for further information regarding our business segments. 32 -------------------------------------------------------------------------------- Table of Contents Recent Developments
OnAugust 12, 2022 , we entered into a purchase agreement with each ofScott Bosard ,Trey Bosard andTyler Bosard (collectively, the "Sellers") to acquire all of the equity interests ofFirebird Bulk Carriers, Inc. ("Firebird") andPhoenix Oil, Inc. ("Phoenix") for approximately$39.7 million , consisting of a cash payment of$35.8 million and 45,777 of our common shares valued at$1.4 million and contingent consideration valued at approximately$2.6 million . Firebird is an interstate bulk motor carrier of crude oil, condensate, fuels, oils and other petroleum products. Firebird is headquartered inHumble, Texas , with six terminal locations throughoutTexas , and operated 123 tractors and 216 trailers largely in the Eagle Ford basin at the time of the acquisition.Phoenix is also headquartered inHumble, Texas , and recycles and repurposes off-specification fuels, lubricants, crude oil and other chemicals from producers in theU.S. Firebird andPhoenix have formed our new logistics and repurposing segment. We expect that this acquisition will offer us the opportunity to expand our value chain and market impact, with numerous synergies benefiting the combined companies. See Note 6 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the acquisition.
New Credit Agreement and Repurchase of KSA Shares
OnOctober 27, 2022 , subsequent to the end of the third fiscal quarter, we entered into a new credit agreement (the "New Credit Agreement") with Cadence Bank and other lenders. The New Credit Agreement provides for a revolving credit facility that allows for borrowings up to$60.0 million principal amount from time to time and a term loan in principal amount of$25.0 million . The New Credit Agreement also provides for up to$30.0 million in letters of credit, which would reduce amounts available under the revolving credit facility by the amounts issued thereunder. The New Credit Agreement replaces our prior$60.0 million credit facility withWells Fargo Bank, National Association . See Note 17 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the New Credit Agreement. OnOctober 31, 2022 , we repurchased an aggregate of 1,942,433 shares of our common stock fromKSA Industries, Inc. , our largest stockholder at the time, and certain members of the family of the lateKenneth Stanley Adams , Jr., our founder, for an aggregate purchase price of$69.9 million . Immediately following the transaction, we had 2,452,404 shares of common stock outstanding. The purchase price was paid with the proceeds of the term loan under the New Credit Agreement, together with cash on hand at the time of the transaction. See Note 17 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the transaction. 33 --------------------------------------------------------------------------------
Table of Contents Results of Operations Crude Oil Marketing
Our crude oil marketing segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 Change (1) 2022 2021 Change (1)
Revenues $ 814,394 $ 543,228 50 % $ 2,524,465 $ 1,310,343 93 %
Operating earnings (2) 5,070 4,255 19 % 20,301 19,643 3 %
Depreciation and amortization 2,008 1,611 25 % 5,690 5,050 13 %
Driver compensation 4,962 4,507 10 % 14,204 13,193 8 %
Insurance 1,679 1,813 (7 %) 5,087 5,659 (10 %)
Fuel 3,425 2,086 64 % 9,429 5,798 63 %
_______________
(1)Represents the percentage increase (decrease) from the prior year period.
(2)Operating earnings included inventory valuation losses of $5.1 million and
$0.3 million for the three months ended September 30, 2022 and 2021,
respectively. For the nine months ended September 30, 2022 and 2021, operating
earnings included inventory liquidation gains of $2.1 million and $10.3 million ,
respectively, as discussed further below.
Volume and price information were as follows for the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Field level purchase volumes - per day (1)
Crude oil - barrels 91,878 91,941 93,334 88,186
Average purchase price
Crude oil - per barrel $ 89.55 $ 67.81 $ 96.84 $ 62.28
_______________(1)Reflects the volume purchased from third parties at the field level of operations.
Three Months EndedSeptember 30, 2022 vs. Three Months EndedSeptember 30, 2021 . Crude oil marketing revenues increased by$271.2 million during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 , primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately$271.8 million , partially offset by lower overall crude oil volumes, which decreased revenues by approximately$0.6 million . The average crude oil price received was$67.81 during the three months endedSeptember 30, 2021 , which increased to$89.55 during the three months endedSeptember 30, 2022 . Revenues from legacy volumes are based upon the market price primarily in ourGulf Coast market area. The market price of crude oil increased throughMay 2022 , as it did throughout 2021, before dropping through the third quarter of 2022. ManyU.S. producers have been exercising capital discipline, maintaining oil production plans in spite of the crude oil price, and have been focusing capital on share buy-backs and renewables. Rig count has risen steadily through the year. Contributing to the volatility in price has been the war inEurope , as well as COVID-19 outbreaks inChina , supply chain issues and labor shortages, and fears of a global economic slowdown, creating uncertainty for demand growth. OPEC+ has also mandated production decreases in hopes of keeping crude oil prices strong but only with moderate success. 34 -------------------------------------------------------------------------------- Table of Contents Our crude oil marketing operating earnings increased by$0.8 million during the three months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to higher crude oil prices and margin, partially offset by higher operating expenses, lower crude oil volumes and inventory valuation changes (as shown in the table below). Driver compensation increased by$0.5 million during the three months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to an increase in driver pay, partially offset by lower volumes transported and a lower overall driver count in the 2022 period as compared to the same period in 2021. Insurance costs decreased by$0.1 million during the three months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due in part to our safety performance in the prior year, and to a lower overall driver count in the 2022 period. Fuel costs increased by$1.3 million during the three months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to higher fuel prices. Depreciation and amortization increased by$0.4 million during the three months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to the timing of purchases and retirements of tractors and other field equipment during 2021 and 2022. Nine Months EndedSeptember 30, 2022 vs. Nine Months EndedSeptember 30, 2021 . Crude oil marketing revenues increased by$1,214.1 million during the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 , primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately$1,074.9 million , and higher overall crude oil volumes, which increased revenues by approximately$139.2 million . The average crude oil price received was$62.28 during the nine months endedSeptember 30, 2021 , which increased to$96.84 during the nine months endedSeptember 30, 2022 . Our crude oil marketing operating earnings increased by$0.7 million during the nine months endedSeptember 30, 2022 , as compared to the same period in 2021, primarily due to higher crude oil prices and volumes, partially offset by inventory valuation changes (as shown in the table below), higher fuel costs and higher driver compensation. Driver compensation increased by$1.0 million during the nine months endedSeptember 30, 2022 as compared to the same period in 2021, primarily as a result of higher volumes transported in the 2022 period and an increase in driver pay as compared to the same period in 2021, partially offset by a lower overall driver count in the 2022 period. Insurance costs decreased by$0.6 million during the nine months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due in part to our safety performance in the prior year, and to a lower overall driver count in the 2022 period. Fuel costs increased by$3.6 million during the nine months endedSeptember 30, 2022 as compared to the same period in 2021, consistent with higher fuel prices. Depreciation and amortization expense increased by$0.6 million during the nine months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to the timing of purchases and retirements of tractors and other field equipment during 2021 and 2022. Field Level Operating Earnings (Non-GAAP Financial Measure). Inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations are two factors affecting comparative crude oil marketing segment operating earnings (losses), of which inventory valuations is the most significant. As a purchaser and shipper of crude oil, we hold inventory in storage tanks and third-party pipelines. During periods of increasing crude oil prices, we recognize inventory liquidation gains while during periods of falling prices, we recognize inventory liquidation and valuation losses. 35 -------------------------------------------------------------------------------- Table of Contents Crude oil marketing operating earnings (losses) can be affected by the valuations of our forward month commodity contracts (derivative instruments), if material. These non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date. We generally enter into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level). The valuation of derivative instruments at period end requires the recognition of non-cash "mark-to-market" gains and losses. The impact of inventory liquidations and valuations and derivative valuations on our crude oil marketing segment operating earnings is summarized in the following reconciliation of our non-GAAP financial measure and provides management a measure of the business unit's performance without the impact of inventory valuation and liquidation adjustments for the periods indicated (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 As reported segment operating earnings (1)$ 5,070 $ 4,255 $ 20,301 $ 19,643 Add (subtract): Inventory liquidation gains - - (2,062) (10,282) Inventory valuation losses 5,122 311 - - Derivative valuation (gains) losses (2) (627) (8) (1,257) (32) Field level operating earnings (3)$ 9,565 $
4,558
_______________
(1)Our crude oil marketing segment's operating earnings included inventory valuation losses of$5.1 million and$0.3 million for the three months endedSeptember 30, 2022 and 2021, respectively. For the nine months endedSeptember 30, 2022 and 2021, operating earnings included inventory liquidation gains of$2.1 million and$10.3 million , respectively. (2)During each of the second and third quarters of 2022, we entered into commodity purchase and sale contracts for 300,000 barrels of crude oil, which were adjusted to fair value atJune 30, 2022 andSeptember 30, 2022 , respectively. (3)The use of field level operating earnings is unique to us, not a substitute for a GAAP measure and may not be comparable to any similar measures developed by industry participants. We utilize this data to evaluate the profitability of our operations. Field level operating earnings and field level purchase volumes depict our day-to-day operation of acquiring crude oil at the wellhead, transporting the product and delivering the product to market sales point. Field level operating earnings increased during the three months endedSeptember 30, 2022 as compared to the same period in 2021 primarily due to higher crude oil prices in the 2022 period, partially offset by lower volumes and higher fuel costs and higher driver compensation. Field level operating earnings increased during the nine months endedSeptember 30, 2022 as compared to the same period in 2021 primarily due to higher crude oil prices and volumes in the 2022 period, partially offset by higher fuel costs and higher driver compensation.
We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels):
September 30, 2022 December 31, 2021
Average Average
Barrels Price Barrels Price
Crude oil inventory 304,554 $ 85.80 259,489 $ 71.86
Prices received for crude oil have been volatile and unpredictable with price
volatility expected to continue. See "Part I, Item 1A. Risk Factors" in our 2021
Form 10-K.
36-------------------------------------------------------------------------------- Table of Contents Transportation
Our transportation segment revenues, operating earnings, selected costs and operating data were as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 Change (1) 2022 2021 Change (1)
Revenues $ 29,830 $ 24,826 20 % $ 86,054 $ 69,558 24 %
Operating earnings $ 3,307 $ 2,264 46 % $ 9,112 $ 4,520 102 %
Depreciation and amortization $ 2,791 $ 2,957 (6 %) $ 8,671 $ 8,895 (3 %)
Driver commissions $ 4,020 $ 3,710 8 % $ 11,509 $ 11,181 3 %
Insurance $ 2,186 $ 2,143 2 % $ 6,499 $ 6,455 1 %
Fuel $ 3,136 $ 1,973 59 % $ 9,647 $ 5,953 62 %
Maintenance expense $ 1,539 $ 1,027 50 % $ 4,057 $ 3,001 35 %
Mileage (000s) 6,775 6,931 (2 %) 20,437 21,109 (3 %)
_______________(1)Represents the percentage increase (decrease) from the prior year period.
Our revenue rate structure includes a component for fuel costs in which fuel
cost fluctuations are largely passed through to the customer. Revenues, net of
fuel costs, were as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Total transportation revenue $ 29,830 $ 24,826 $ 86,054 $ 69,558
Diesel fuel cost (3,136) (1,973) (9,647) (5,953)
Revenues, net of fuel costs (1)
_______________
(1) Revenues, net of fuel costs, is a non-GAAP financial measure and is utilized for internal analysis of the results of our transportation segment.
Three Months EndedSeptember 30, 2022 vs. Three Months EndedSeptember 30, 2021 . Transportation revenues increased by$5.0 million during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . Transportation revenues, net of fuel costs, increased by$3.8 million during the three months endedSeptember 30, 2022 , as compared to the prior year period. These increases in transportation revenues were primarily due to increased transportation rates during the 2022 period through continued negotiations with customers to increase rates. In addition, as a result of customer demand, we opened four new terminals during the second half of 2021. These terminals, located inWest Memphis, Arkansas ,Charleston, West Virginia ,Augusta, Georgia , andJoliet, Illinois , increased revenues by approximately$2.4 million during the third quarter of 2022. Our transportation operating earnings increased by$1.0 million for the three months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to higher revenues as a result of increased transportation rates and revenues from new terminals, partially offset by higher fuel costs and higher maintenance expense.
Driver commissions increased by
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Fuel costs increased by $1.2 million during the three months ended September 30,
2022 as compared to the same period in 2021, primarily as a result of an
increase in the price of fuel during the 2022 period. Insurance costs remained
relatively constant during the three months ended September 30, 2022 as compared
to the same period in 2021, primarily due to consistent insurance premiums
during the 2021 and 2022 periods. Maintenance expense increased by $0.5 million
during the three months ended September 30, 2022 as compared to the same period
in 2021, primarily due to repairs and maintenance to older tractors and trailers
in our fleet and escalating prices in parts, repairs and maintenance.
Depreciation and amortization expense decreased by $0.2 million during the three
months ended September 30, 2022 as compared to the same period in 2021,
primarily as a result of the timing of purchases of new tractors and trailers in
2021 and 2022.
Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021 .
Transportation revenues increased by $16.5 million during the nine months ended
September 30, 2022 as compared to the nine months ended September 30, 2021 .
Transportation revenues, net of fuel costs, increased by $12.8 million during
the nine months ended September 30, 2022 , as compared to the prior year period.
These increases in transportation revenues were primarily due to increased
transportation rates during the 2022 period through continued negotiations with
customers to increase rates. In addition, as a result of customer demand, we
opened four new terminals during the second half of 2021. These terminals,
located in West Memphis, Arkansas , Charleston, West Virginia , Augusta, Georgia ,
and Joliet, Illinois , increased revenues by approximately $6.9 million during
the first nine months of 2022. In February 2021 , a severe winter storm and
resulting power outages affected Texas , which resulted in a significant decline
in transportation services for over a week and a temporary loss of revenues in
the 2021 period.
Our transportation operating earnings increased by $4.6 million for the nine
months ended September 30, 2022 as compared to the same period in 2021,
primarily due to higher revenues as a result of increased transportation rates
and revenues from new terminals, partially offset by higher fuel costs and
higher maintenance expense.
Driver commissions increased by
Fuel costs increased by$3.7 million during the nine months endedSeptember 30, 2022 as compared to the same period in 2021, primarily as a result of an increase in price of fuel during the 2022 period. Insurance costs remained relatively constant during the nine months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to consistent premiums during the 2021 and 2022 periods. Maintenance expense increased by$1.1 million during the nine months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to repairs and maintenance to older tractors and trailers in our fleet and escalating prices in parts, repairs and maintenance. Depreciation and amortization expense decreased by$0.2 million during the nine months endedSeptember 30, 2022 as compared to the same period in 2021, primarily as a result of the timing of purchases of new tractors and trailers in 2021 and 2022. 38
-------------------------------------------------------------------------------- Table of Contents Pipeline and Storage
Our pipeline and storage segment revenues, operating losses and selected costs were as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 Change (1) 2022 2021 Change (1)
Segment revenues (2) $ 2,912 $ 738 295 % $ 5,869 $ 1,808 225%
Less: Intersegment revenues 354%
(2) (2,912) (611) 377 % (5,869) (1,293)
Revenues $ - $ 127 (100 %) $ - $ 515 (100%)
Operating losses (909) (716) 27 % (2,607) (1,837) 42%
Depreciation and amortization 269 281 (4 %) 808 758 7%
Insurance 200 169 18 % 600 527 14%
_______________
(1)Represents the percentage increase (decrease) from the prior year period.
(2)Segment revenues include intersegment revenues from our crude oil marketing
segment, which are eliminated due to consolidation in our unaudited condensed
consolidated statements of operations.
Volume information was as follows for the periods indicated (in barrels per
day):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Pipeline throughput 9,963 9,759 11,242 6,889
Terminalling 9,716 9,159 11,451 7,408
During the three and nine months ended September 30, 2022 , all pipeline and
storage segment revenues were earned from an affiliated shipper, while during
the three and nine months ended September 30, 2021 , pipeline and storage
revenues included revenues from a third-party shipper under a contract that had
been in place at the time of the acquisition of the pipeline and related
terminal assets, and has subsequently ended. Revenues earned from an affiliated
shipper are eliminated due to consolidation, with the offset to marketing costs
and expenses in our unaudited condensed consolidated statements of operations.
We are continuing to focus on opportunities to increase our pipeline and storage
capacity utilization, by identifying opportunities with our existing and new
customers to increase volumes. We are breaking ground on the new pipeline
connection between our Victoria Express Pipeline and the Max Midstream pipeline
system, and we expect to complete construction and place the assets into
commercial service during the second quarter of 2023. In addition, we are
exploring new connections with several other pipeline systems, for new crude oil
supply opportunities both upstream and downstream of the pipeline, to enhance
the crude oil supply and take-away capability of the system.
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Logistics and Repurposing
Our logistics and repurposing segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 (1) 2022 (1)
Revenues $ 8,677 $ 8,677
Operating earnings 155 155
Depreciation and amortization 940 940
Driver commissions 1,554 1,554
Insurance 128 128
Fuel 676 676
Maintenance expense 260 260
_______________
(1)Represents the period from acquisition,
OnAugust 12, 2022 , we acquired all of the equity interests of Firebird andPhoenix . Firebird is an interstate bulk motor carrier of crude oil, condensate, fuels, oils and other petroleum products. Firebird has six terminal locations throughoutTexas and owned 123 tractors and 216 trailers largely in the EagleFord basin at the time of the acquisition.Phoenix recycles and repurposes off-specification fuels, lubricants, crude oil and other chemicals from producers in theU.S. We expect that this acquisition will offer us the opportunity to expand our value chain and market impact, with numerous synergies benefiting the combined companies.
General and Administrative Expense
General and administrative expense increased by$1.1 million during the three months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to higher salaries and wages and related personnel costs, outside service costs, audit fees and legal fees, partially offset by lower franchise and other taxes. The 2022 period also includes approximately$0.3 million of acquisition related costs for the purchase ofPhoenix and Firebird (see Note 6 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information) and approximately$0.2 million of costs related to the repurchase of our common shares from an affiliate (see Note 17 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information). General and administrative expense increased by$3.0 million during the nine months endedSeptember 30, 2022 as compared to the same period in 2021, primarily due to higher salaries and wages and related personnel costs, outside service costs, audit fees and legal fees, partially offset by lower franchise and other taxes. The 2022 period also includes approximately$0.3 million of acquisition related costs for the purchase ofPhoenix and Firebird and approximately$0.2 million of costs related to the repurchase of our common shares from an affiliate.
Income Taxes
Provision for (benefit from) income taxes is based upon federal and state tax
rates, and variations in amounts are consistent with taxable income (loss) in
the respective accounting periods.
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On March 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act
("CARES Act") was enacted and signed into law in response to the COVID-19
pandemic. The CARES Act, among other things, permits net operating losses
("NOL") incurred in tax years 2018, 2019 and 2020 to offset 100 percent of
taxable income and be carried back to each of the five preceding taxable years
to generate a refund of previously paid income taxes. We carried back our NOL
for fiscal year 2020 to fiscal years 2015 and 2016, and in June 2022 , we
received a cash refund of approximately $6.8 million .
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity are (i) our cash balance, (ii) cash flow from
operating activities, (iii) borrowings under our bank credit facility and (iv)
funds received from the sale of equity securities. Our primary cash requirements
include, but are not limited to, (a) ordinary course of business uses, such as
the payment of amounts related to the purchase of crude oil, and other expenses,
(b) discretionary capital spending for investments in our business and (c)
dividends to our shareholders. We believe we will have sufficient liquidity
through our current cash balances, availability under our bank credit facility,
expected cash generated from future operations, and the financing tractor and
trailer additions through leasing arrangements (should the need arise) to meet
our short-term and long-term liquidity needs for the reasonably foreseeable
future. Our cash balance and cash flow from operating activities is dependent on
the success of future operations. If our cash inflow subsides or turns negative,
we will evaluate our investment plan accordingly and remain flexible.
We maintain cash balances in order to meet the timing of day-to-day cash needs.
Cash and cash equivalents (excluding restricted cash) and working capital, the
excess of current assets over current liabilities, were as follows at the dates
indicated (in thousands):
September 30, December 31,
2022 2021
Cash and cash equivalents $ 86,510 $ 97,825
Working capital 81,416 87,199
Our cash balance at
AtSeptember 30, 2022 , we had$15.0 million of borrowings outstanding under the amended credit agreement with Wells Fargo and$8.2 million of letters of credit issued under the amended credit agreement with Wells Fargo at a fee of 1.75 percent per annum. See Note 11 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information. During the 2022 period, as a result of the significant increase in crude oil prices, we borrowed$45.0 million under the amended credit agreement with Well Fargo for working capital purposes and repaid$30.0 million . AtSeptember 30, 2022 , we were in compliance with all financial covenants under this credit agreement. See Note 17 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the termination of the credit agreement with Wells Fargo and our entry into a new credit agreement subsequent to the end of our third fiscal quarter. We have in place an At Market Issuance Sales Agreement ("ATM Agreement") withB. Riley Securities, Inc. , as agent (the "Agent"), in which we may offer to sell shares of our common stock through or to the Agent for cash from time to time. During the nine months endedSeptember 30, 2022 , we received net proceeds of approximately$0.3 million (net of offering costs toB. Riley Securities, Inc. of$14 thousand ) from the sale of 8,202 of our common shares at an average price per share of approximately$37.38 under this agreement. We did not sell any shares during the three months endedSeptember 30, 2022 . 41 -------------------------------------------------------------------------------- Table of Contents We utilize cash from operations to make discretionary investments in our crude oil marketing, transportation, pipeline and storage and logistics and repurposing businesses. With the exception of operating and finance lease commitments primarily associated with storage tank terminal arrangements, leased office space, tractors, trailers and other equipment, and borrowings outstanding under our bank credit facility, our future commitments and planned investments can be readily curtailed if operating cash flows decrease. See "Material Cash Requirements" below for information regarding our operating and finance lease obligations. The most significant item affecting future increases or decreases in liquidity is earnings from operations, and these earnings are dependent on the success of future operations. See "Part I, Item 1A. Risk Factors" in our 2021 Form 10-K.
Cash Flows from Operating, Investing and Financing Activities
Our consolidated cash flows from operating, investing and financing activities were as follows for the periods indicated (in thousands):
Nine Months Ended
September 30,
2022 2021
Cash provided by (used in):
Operating activities $ 15,832 $ 64,232
Investing activities (37,847) (8,043)
Financing activities 8,612 (5,832)
Operating activities. Net cash flows provided by operating activities for the
nine months ended September 30, 2022 decreased by $48.4 million as compared to
the same period in 2021. The decrease in net cash flows from operating
activities was primarily due to changes in our working capital accounts,
including an increase of $10.9 million in crude oil inventory at September 30,
2022 . The increase in inventory was primarily due to an increase in the price of
our crude oil inventory, which increased from $71.86 at December 31, 2021 to
$85.80 at September 30, 2022 , and an increase of 17.4 percent in the number of
barrels held in inventory.
At various times each month, we may make cash prepayments and/or early payments
in advance of the normal due date to certain suppliers of crude oil within our
crude oil marketing operations. Crude oil supply prepayments are recouped and
advanced from month to month as the suppliers deliver product to us. In
addition, in order to secure crude oil supply, we may also "early pay" our
suppliers in advance of the normal payment due date of the twentieth of the
month following the month of production. These "early payments" reduce cash and
accounts payable as of the balance sheet date.
We also require certain customers to make similar early payments or to post cash
collateral with us in order to support their purchases from us. Early payments
and cash collateral received from customers increase cash and reduce accounts
receivable as of the balance sheet date.
Early payments received from customers and prepayments to suppliers were as follows at the dates indicated (in thousands):
September 30, December 31,
2022 2021
Early payments received $ 43,133 $ 52,841
Prepayments to suppliers 12,242 5,732
42-------------------------------------------------------------------------------- Table of Contents We rely heavily on our ability to obtain open-line trade credit from our suppliers especially with respect to our crude oil marketing operations. DuringDecember 2021 andSeptember 2022 , we received early payments from certain customers in our crude oil marketing operations as noted in the table above. Our cash balance decreased by approximately$11.3 million as ofSeptember 30, 2022 relative to the year endedDecember 31, 2021 primarily as a result of the timing of the receipt of these early payments received and prepayments made to suppliers during each period resulting from an increase in crude oil price and marketing activities. Investing activities. Net cash flows used in investing activities for the nine months endedSeptember 30, 2022 increased by$29.8 million as compared to the same period in 2021. This increase was due to a payment of$33.6 million for the acquisition of Firebird andPhoenix inAugust 2022 (see Note 6 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information), partially offset by a decrease of$3.1 million in capital spending for property and equipment (see following table) and an increase of$0.3 million in cash proceeds from the sales of assets.
Capital spending was as follows for the periods indicated (in thousands):
Nine Months Ended
September 30,
2022 2021
Crude oil marketing (1) $ 4,351 $ 1,145
Transportation (2) 1,416 7,607
Pipeline and storage (3) 890 1,169
Logistics and repurposing (4) 132 -
Other (5) 8 8
Capital spending $ 6,797 $ 9,929
_______________
(1)2022 amount relates to the purchase of 20 tractors, 10 trailers and other
field equipment, and the 2021 amount relates to the purchase of field equipment.
(2)2022 amount relates to the purchase of three tractors, two trailers and other
field equipment, and the 2021 amount relates to the purchase of 52 trailers, 26
tractors, and computer software and equipment.
(3)2022 amount relates to the purchase of land and easements in connection with
a planned pipeline connection, and the 2021 amount relates to the purchase of
field equipment.
(4)2022 amount relates to the purchase of field equipment.
(5)Other capital spending relates to the purchase of office and computer
equipment.
Financing activities. Net cash flows provided by financing activities was $8.6
million for the nine months ended September 30, 2022 as compared to net cash
flows used in financing activities of $5.8 million for the nine months ended
September 30, 2021 . The increase in net cash flows from financing activities of
$14.4 million was primarily due to borrowings and repayments under our bank
credit facility during each period. During the 2022 period, as a result of the
significant increase in crude oil prices and other cash flow needs, we borrowed
$45.0 million under the bank credit facility for working capital purposes and
repaid $30.0 million , while during the 2021 period, we borrowed $8.0 million
under the bank credit facility primarily to repay the $10.0 million outstanding
payable related to the purchase of the VEX pipeline system in October 2020 .
This increase in cash flows was partially offset by an increase of $0.3 million
in principal repayments made for finance lease obligations (see below). During
each of the nine months ended September 30, 2022 and 2021, we paid cash
dividends of $0.72 per common share, or totals of $3.2 million and $3.1 million ,
respectively. During the nine months ended September 30, 2022 , we received net
proceeds of approximately $0.3 million from the sale of 8,202 of our common
shares under the ATM Agreement as compared to net proceeds of approximately $2.5
million from the sale of 86,323 of our comments shares under the ATM Agreement
during the nine months ended September 30, 2021 .
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Material Cash Requirements
The following table summarizes our contractual obligations with material cash
requirements at
Payments due by period
Less than 1 More than 5
Contractual Obligations Total year 1-3 years 3-5 years years
Credit Agreement (1) $ 15,000 $ -
4,598 5,944 4,513 -
Operating lease obligations
(3) 8,401 2,969 3,782 1,357 293
Purchase obligations (4) 13,358 13,358 - - -
Total contractual obligations
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(1)Represents amounts due under our credit agreement with Wells Fargo. See Note 11 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information about our credit agreement. (2)Amounts represent our principal contractual commitments, including interest, outstanding under finance leases for certain tractors, trailers, tank storage and throughput arrangements and other equipment. (3)Amounts represent rental obligations under non-cancelable operating leases and terminal arrangements with terms in excess of one year. (4)Amount represents commitments to purchase 35 new tractors and 38 new trailers in our transportation business and 28 new tractors and two new trailers in our crude oil marketing business.
See Note 15 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding our finance and operating leases.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably expected to have a material current or future effect on our financial position, results of operations or cash flows.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements.
Transactions with Affiliates
For more information regarding transactions with our affiliates during the three and nine months endedSeptember 30, 2022 and 2021, and subsequent toSeptember 30, 2022 , see Note 9 and Note 17 in the Notes to Unaudited Condensed Consolidated Financial Statements.
Critical Accounting Policies and Use of Estimates
A discussion of our critical accounting policies and estimates is included in our 2021 Form 10-K. Certain of these accounting policies require the use of estimates. There have been no material changes to our accounting policies since the disclosures provided in our 2021 Form 10-K. 44
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