PAR PACIFIC HOLDINGS, INC. Overview
We are a growth-oriented company based in
Our business is organized into three primary segments:
1) Refining - We own and operate three refineries with total operating
throughput capacity of 154 Mbpd in
2) Retail - Our retail outlets inHawaii ,Washington , andIdaho 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 theRocky Mountain regions to transport and store crude oil and refined products for our refineries and transport refined products to our retail sites or third-party purchasers. As ofJune 30, 2022 , we owned a 46.0% equity investment in Laramie Energy. Laramie Energy is focused on producing natural gas inGarfield ,Mesa , andRio Blanco counties,Colorado . Given the improved outlook for natural gas, we are considering strategic alternatives with respect to our investment inLaramie Energy, including, among other things, a change in the size of our investment. We have four reportable segments: (i) Refining, (ii) Retail, (iii) Logistics, and (iv) Corporate and Other. Our Corporate and Other reportable segment primarily includes general and administrative costs. Please read Note 17-Segment Information to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for detailed information on our operating results by segment.
Recent Events Affecting Comparability of Periods
During the first half of 2022, the global market for energy commodities experienced rising prices and significant volatility. The price of crude oil continues to rise as the global economy recovers from lows related to the COVID-19 pandemic.The Organization of the Petroleum Exporting Companies ("OPEC") and its oil-producing allies are forecasting production increases and increasing global demand throughout 2022. This rise in demand is driven by a recovery of global travel to pre-pandemic levels as well as a rise in gasoline demand as people return to in-office work and traveling. In March, theU.S. Centers for Disease Control and Prevention ("CDC") lifted itsTravel Health Notice for cruise ships in response to the decline in COVID-19 cases, and, as of April, theU.S. Transportation Security Administration ("TSA") no longer requires masking onU.S. domestic flights. Airline companies, which represent a significant portion of ourHawaii market through jet fuel sales, have forecasted significant increases in air travel volumes for the remainder of 2022 andHawaii visitor counts for the first half of 2022 are in excess of 90% of pre-pandemic levels. Over the past 12 months, energy prices increased 41.6% andU.S. gasoline prices increased 11.2% in June alone. Rising gasoline prices, and rising energy prices overall, are indicators of inflation and theU.S. Federal Reserve (the "Fed") has begun taking steps to try to curb inflation. In summer 2022, the Fed increased its benchmark interest rate by 75 basis points twice, to 1.75% in June and to 2.5% in July, bringing the benchmark rate to its highest level sinceDecember 2018 . Following the July increase, the Fed indicated that it was open to further increases in September. These actions by the Fed are intended to cool risingU.S. inflation rates, which have increased 9.1% year over year as ofJune 2022 , by slowing economic growth and nonessential consumer spending (including travel). If consumer spending decreases as a result of these actions, it is expected that demand and prices for our products will decrease in kind. In response to the Russian invasion ofUkraine in February, the international community imposed economic sanctions and other limitations on Russian exports, which further decreased the global supply of crude oil and drove up the price of crude oil. OnMarch 3, 2022 , we suspended purchases of Russian crude oil for ourHawaii refinery in response to theRussia -Ukraine conflict. We have turned to other grades of crude oil to meet fuel production requirements. As of the date of this Quarterly Report on Form 10-Q, theRussia -Ukraine conflict is ongoing and continues to impact the global economy. We will continue to monitor the effects the conflict has on the global financial markets and our operations. Please read Item 1A. - Risk Factors for more information on theRussia -Ukraine conflict and its potential impacts on our 28 -------------------------------------------------------------------------------- business. Additionally, the financial results contained in this Quarterly Report on Form 10-Q reflect rebounding demand driven by decreasing COVID-19 pandemic-related demand suppression experienced in the regions in which we operate. Although case counts are increasing relative to early in the pandemic, widespread vaccine availability has lessened the severity of COVID-19 cases leading to increased travel and public contact. The pandemic is ongoing and the impacts of the virus on people and businesses continue to evolve as of the date of this report. The full magnitude of the impact of these and other events on our financial condition, future results of operations, and future cash flows and liquidity is uncertain and has been and may continue to be material.
Results of Operations
Three months ended
Net Income (Loss). Our financial results for the second quarter of 2022 improved from a net loss of$109.0 million for the three months endedJune 30, 2021 to net income of$149.1 million for the three months endedJune 30, 2022 . The increase was primarily driven by higher product crack spreads and a favorable change in FIFO benefit at ourHawaii refinery , partially offset by higher purchased product differentials and derivative costs and higher RINs expenses. Adjusted EBITDA and Adjusted Net Income (Loss). For the three months endedJune 30, 2022 , Adjusted EBITDA was$242.1 million compared to$26.7 million for the three months endedJune 30, 2021 . The increase was primarily related to improved crack spreads across all of our refineries, partially offset by unfavorable purchased product differentials and realized derivatives at ourHawaii refinery and higher costs related to our inventory financing agreements. For the three months endedJune 30, 2022 , Adjusted Net Income was$197.2 million compared to a loss of$14.7 million for the three months endedJune 30, 2021 . The improvement was primarily related to the factors described above for the increase in Adjusted EBITDA.
Six months ended
Net Income (Loss). Our financial results improved from a net loss of$171.2 million for the six months endedJune 30, 2021 to net income of$12.1 million for the six months endedJune 30, 2022 . The increase in profitability was primarily driven by higher product crack spreads, partially offset by unfavorable purchased product differentials and derivatives costs, higher costs associated with our inventory financing agreements, and a gain of$63.9 million related to the 2021 Hawaii sale-leaseback transactions in the six months endedJune 30, 2021 with no such gain in the 2022 comparable period. Adjusted EBITDA and Adjusted Net Income (Loss). For the six months endedJune 30, 2022 , Adjusted EBITDA was$254.5 million compared to$40.4 million for the six months endedJune 30, 2021 . The improvement was primarily related to favorable crack spreads across all of our refineries, partially offset by unfavorable purchased product differentials and realized derivatives at ourHawaii refinery and higher costs related to our inventory financing agreements. Other factors impacting our results period over period include increased fuel burn costs, a 4% decrease in refining sales volume primarily related to theWashington refinery turnaround in 2022, and higher operating expenses compared to the comparable period in 2021. For the six months endedJune 30, 2022 , Adjusted Net Income was$169.9 million compared to a loss of$42.0 million for the six months endedJune 30, 2021 . The improvement was primarily related to the same factors described above for the increase in Adjusted EBITDA. 29 -------------------------------------------------------------------------------- The following tables summarize our consolidated results of operations for the three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 2021 (in thousands). The following should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Three Months Ended June 30, 2022 2021 $ Change % Change Revenues$ 2,106,332 $ 1,217,525 $ 888,807 73% Cost of revenues (excluding depreciation) 1,808,925 1,197,298 611,627 51% Operating expense (excluding depreciation) 82,342 68,821 13,521 20% Depreciation and amortization 25,583 23,548 2,035 9% Loss on sale of assets, net 15 510 (495) (97)% General and administrative expense (excluding depreciation) 15,438 12,201 3,237 27% Acquisition and integration costs - (352) 352 100% Total operating expenses 1,932,303 1,302,026 Operating income (loss) 174,029 (84,501) Other income (expense) Interest expense and financing costs, net (18,154) (17,186) (968) 6% Debt extinguishment and commitment costs (5,672) (6,628) 956 (14)% Other income (expense), net 47 (36) 83 231% Total other expense, net (23,779) (23,850) Income (loss) before income taxes 150,250 (108,351) Income tax expense (1,125) (607) (518) 85% Net income (loss)$ 149,125 $ (108,958) Six Months Ended June 30, 2022 2021 $ Change % Change Revenues$ 3,456,625 $ 2,106,205 $ 1,350,420 64% Cost of revenues (excluding depreciation) 3,159,174 2,086,161 1,073,013 51% Operating expense (excluding depreciation) 163,746 143,009 20,737 15% Depreciation and amortization 49,363 46,428 2,935 6% Loss (gain) on sale of assets, net 15 (64,402) 64,417 (100)% General and administrative expense (excluding depreciation) 31,331 24,086 7,245 30% Acquisition and integration costs 63 86 (23) (27)% Total operating expenses 3,403,692 2,235,368 Operating income (loss) 52,933 (129,163) Other income (expense) Interest expense and financing costs, net (34,548) (35,337) 789 (2)% Debt extinguishment and commitment costs (5,672) (8,135) 2,463 (30)% Gain on curtailment of pension obligation - 2,032 (2,032) (100)% Other income, net 49 25 24 96% Total other expense, net (40,171) (41,415) Income (loss) before income taxes 12,762 (170,578) Income tax expense (688) (607) (81) (13)% Net income (loss)$ 12,074 $ (171,185) 30
-------------------------------------------------------------------------------- The following tables summarize our operating income (loss) by segment for the three and six months endedJune 30, 2022 and 2021 (in thousands). The following should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Corporate, Eliminations and Three months ended June 30, 2022 Refining Logistics Retail 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) 59,101 3,797 19,444 - 82,342 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 Acquisition and integration costs - - - - - Operating income (loss)$ 168,798 $ 15,898 $ 5,525 $ (16,192) $ 174,029 Corporate, Eliminations and Three months ended June 30, 2021 Refining Logistics Retail Other (1) Total Revenues$ 1,155,847 $ 48,706 $ 118,446 $ (105,474) $ 1,217,525 Cost of revenues (excluding depreciation) 1,190,797 25,314 86,671 (105,484) 1,197,298 Operating expense (excluding depreciation) 47,944 3,494 17,383 - 68,821 Depreciation and amortization 14,561 5,377 2,874 736 23,548 Loss (gain) on sale of assets, net 1,664 (21) (1,133) - 510 General and administrative expense (excluding depreciation) - - - 12,201 12,201 Acquisition and integration costs - - - (352) (352) Operating income (loss)$ (99,119) $ 14,542 $ 12,651 $ (12,575) $ (84,501)
________________________________________________________
(1)Includes eliminations of intersegment Revenues and Cost of revenues
(excluding depreciation) of
Corporate,
Eliminations and
Six months ended June 30, 2022 Refining Logistics Retail 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) 117,401 7,570 38,775 - 163,746
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
Operating income (loss) $ 50,473 $ 25,750 $ 9,570 $ (32,860) $ 52,933
31
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Corporate,
Eliminations and
Six months ended June 30, 2021 Refining Logistics Retail Other (1) Total
Revenues $ 1,994,602 $ 90,015 $ 209,634 $ (188,046) $ 2,106,205
Cost of revenues (excluding
depreciation) 2,074,274 47,396 152,543 (188,052) 2,086,161
Operating expense (excluding
depreciation) 101,282 7,390 34,337 - 143,009
Depreciation and amortization 28,625 10,631 5,534 1,638 46,428
Loss (gain) from sale of assets,
net (19,595) (21) (44,786) - (64,402)
General and administrative expense
(excluding depreciation) - - - 24,086 24,086
Acquisition and integration costs - - - 86 86
Operating income (loss) $ (189,984) $ 24,619 $ 62,006 $ (25,804) $ (129,163) ________________________________________________________
(1)Includes eliminations of intersegment Revenues and Cost of revenues
(excluding depreciation) of
32
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Below is a summary of key operating statistics for the refining segment for
the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Total Refining Segment
Feedstocks Throughput (Mbpd) 141.3 140.7 129.8 134.1
Refined product sales volume (Mbpd) 143.4 146.6 133.0 138.5
Hawaii Refinery
Feedstocks Throughput (Mbpd) 84.1 84.0 83.4 82.6
Yield (% of total throughput)
Gasoline and gasoline blendstocks 22.9 % 24.7 % 24.0 % 24.7 %
Distillates 38.0 % 46.8 % 39.6 % 44.9 %
Fuel oils 33.6 % 25.6 % 31.5 % 26.5 %
Other products 2.4 % (0.4) % 1.4 % 0.5 %
Total yield 96.9 % 96.7 % 96.5 % 96.6 %
Refined product sales volume (Mbpd)
On-island sales volume 80.2 87.3 79.2 82.6
Exports sales volume - - - -
Total refined product sales volume 80.2 87.3 79.2 82.6
Adjusted Gross Margin per bbl
($/throughput bbl) (1) $ 18.71 $ 2.73 $ 11.22 $ 3.51
Production costs per bbl ($/throughput
bbl) (2) 4.50 3.40 4.45 3.69
D&A per bbl ($/throughput bbl) 0.66 0.65 0.66 0.66
Washington Refinery
Feedstocks Throughput (Mbpd) 40.5 38.7 30.4 35.2
Yield (% of total throughput)
Gasoline and gasoline blendstocks 24.2 % 23.6 % 24.4 % 24.0 %
Distillates 34.4 % 34.1 % 34.1 % 35.0 %
Asphalt 20.8 % 21.5 % 19.7 % 19.9 %
Other products 17.4 % 17.8 % 18.6 % 18.2 %
Total yield 96.8 % 97.0 % 96.8 % 97.1 %
Refined product sales volume (Mbpd) 44.6 40.9 37.1 40.1
Adjusted Gross Margin per bbl
($/throughput bbl) (1) $ 20.50 $ 1.97 $ 14.17 $ 2.14
Production costs per bbl ($/throughput
bbl) (2) 3.40 3.28 4.71 3.76
D&A per bbl ($/throughput bbl) 2.03 1.49 2.45 1.62
33
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Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Wyoming Refinery
Feedstocks Throughput (Mbpd) 16.7 18.0 16.0 16.3
Yield (% of total throughput)
Gasoline and gasoline blendstocks 48.1 % 45.6 % 49.1 % 47.1 %
Distillates 43.6 % 46.6 % 43.4 % 45.9 %
Fuel oils 2.2 % 2.4 % 2.3 % 2.0 %
Other products 3.4 % 2.5 % 2.5 % 1.9 %
Total yield 97.3 % 97.1 % 97.3 % 96.9 %
Refined product sales volume (Mbpd) 18.6 18.4 16.7 15.8
Adjusted Gross Margin per bbl
($/throughput bbl) (1) $ 43.34 $ 15.10 $ 34.97 $ 13.38
Production costs per bbl ($/throughput
bbl) (2) 6.97 5.71 7.46 6.78
D&A per bbl ($/throughput bbl) 2.92 2.63 3.07 2.85
Market Indices (average $ per barrel)
3-1-2 Singapore Crack Spread (3)$ 36.80 $ 4.38 $ 26.56 $ 4.09 Pacific Northwest 5-2-2-1 Index (4) 46.16 16.05 34.09 13.77 Wyoming 3-2-1 Index (5) 54.55 30.04 40.62 25.53 Crude Oil Prices (average $ per barrel) Brent$ 111.98 $ 69.08 $ 104.98 $ 65.22 WTI 108.52 66.17 101.80 62.18 ANS 115.84 69.44 107.74 65.57 Bakken Clearbrook 112.44 65.99 105.45 61.82 WCS Hardisty 93.35 53.33 87.97 49.77 Brent M1-M3 4.23 0.96 4.18 0.89
________________________________________________________
(1)We calculate Adjusted Gross Margin per barrel by dividing Adjusted Gross Margin by total refining throughput. Adjusted Gross Margin for ourWashington refinery is determined under the last-in, first-out ("LIFO") inventory costing method. Adjusted Gross Margin for our other refineries is determined under the first-in, first-out ("FIFO") inventory costing method. The definition of Adjusted Gross Margin was modified beginning with the financial results reported for periods in fiscal year 2022. We have recast Adjusted Gross Margin for prior periods when reported to conform to the modified presentation. Please see discussion of Adjusted Gross Margin below. (2)Management uses production costs per barrel to evaluate performance and compare efficiency to other companies in the industry. There are a variety of ways to calculate production costs per barrel; different companies within the industry calculate it in different ways. We calculate production costs per barrel by dividing all direct production costs, which include the costs to run the refineries including personnel costs, repair and maintenance costs, insurance, utilities, and other miscellaneous costs, by total refining throughput. Our production costs are included in Operating expense (excluding depreciation) on our condensed consolidated statement of operations, which also includes costs related to our bulk marketing operations. (3)We believe the 3-1-2 Singapore Crack Spread (or three barrels of Brent crude oil converted into one barrel of gasoline and two barrels of distillates (diesel and jet fuel)) is the most representative market indicator for our operations inHawaii . (4)We believe thePacific Northwest 5-2-2-1 Index is the most representative market indicator for our operations inTacoma, Washington . ThePacific Northwest 5-2-2-1 Index is computed by taking two parts gasoline (sub-octane), two parts middle distillates (ultra-low sulfur diesel ("ULSD") and jet fuel), and one part fuel oil as created from five barrels of Alaskan North Slope ("ANS") crude oil. 34 -------------------------------------------------------------------------------- (5)The profitability of ourWyoming refinery is heavily influenced by crack spreads in nearby markets. We believe theWyoming 3-2-1 Index is the most representative market indicator for our operations inWyoming . TheWyoming 3-2-1 Index is computed by taking two parts gasoline and one part distillates (ULSD) as created from three barrels of West Texas Intermediate Crude Oil ("WTI"). Pricing is based 50% on applicable product pricing inRapid City, South Dakota , and 50% on applicable product pricing inDenver, Colorado .
Below is a summary of key operating statistics for the retail segment for the
three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Retail Segment
Retail sales volumes (thousands of
gallons) 25,862 28,871 50,770 53,672
Non-GAAP Performance Measures
Management uses certain financial measures to evaluate our operating performance
that are considered non-GAAP financial measures. These measures should not be
considered in isolation or as substitutes or alternatives to their most directly
comparable GAAP financial measures or any other measure of financial performance
or liquidity presented in accordance with GAAP. These non-GAAP measures may not
be comparable to similarly titled measures used by other companies since each
company may define these terms differently.
We believe Adjusted Gross Margin (as defined below) provides useful information
to investors because it eliminates the gross impact of volatile commodity prices
and adjusts for certain non-cash items and timing differences created by our
inventory financing agreements and lower of cost and net realizable value
adjustments to demonstrate the earnings potential of the business before other
fixed and variable costs, which are reported separately in Operating expense
(excluding depreciation) and Depreciation and amortization. Management uses
Adjusted Gross Margin per barrel to evaluate operating performance and compare
profitability to other companies in the industry and to industry benchmarks. We
believe Adjusted Net Income (Loss) and Adjusted EBITDA (as defined below) are
useful supplemental financial measures that allow investors to assess the
financial performance of our assets without regard to financing methods, capital
structure, or historical cost basis, the ability of our assets to generate cash
to pay interest on our indebtedness, and our operating performance and return on
invested capital as compared to other companies without regard to financing
methods and capital structure.
Beginning with financial results reported for periods in fiscal year 2022, the
inventory valuation adjustment was modified to include the first-in, first-out
("FIFO") inventory gains (losses) associated with our titled manufactured
inventory in Hawaii . This modification was made to better align Adjusted Net
Income (Loss) and Adjusted EBITDA with the cash flow of the Hawaii refining
business. Prior to 2022, the impacts of FIFO inventory gains (losses) associated
with Hawaii titled manufactured inventory were eliminated through the inventory
valuation adjustment. Beginning with financial results reported for the second
quarter of 2022, Adjusted Gross Margin, Adjusted Net Income (Loss), and Adjusted
EBITDA also exclude the mark-to-market losses (gains) associated with our net
RINs liability. This modification was made to better reflect our operating
performance and to improve comparability between periods. We have recast
Adjusted Gross Margin, Adjusted Net Income (Loss), and Adjusted EBITDA for prior
periods when reported to conform to the modified presentation.
Adjusted Gross Margin
Adjusted Gross Margin is defined as operating income (loss) excluding:
•operating expense (excluding depreciation);
•depreciation and amortization ("D&A");
•impairment expense;
•loss (gain) on sale of assets, net;
•inventory valuation adjustment (which adjusts for timing differences to reflect
the economics of our inventory financing agreements, including lower of cost or
net realizable value adjustments, the impact of the embedded derivative
repurchase or terminal obligations, contango (gains) and backwardation losses
associated with our Washington inventory and intermediation obligation, and
purchase price allocation adjustments; beginning in 2022, this also includes the
FIFO inventory (gains) losses associated with our titled manufactured inventory
in Hawaii );
•LIFO layer liquidation impacts associated with our Washington inventory;
35
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•Renewable Identification Numbers ("RINs") mark-to-market adjustments (which
represents the income statement effect of reflecting our RINs liability on a net
basis; beginning with financial results reported for the second quarter of 2022,
this also includes the mark-to-market losses (gains) associated with our net
RINs liability); and
•unrealized loss (gain) on derivatives.
Adjusted Gross Margin can also be defined as revenues less cost of revenues (excluding depreciation) excluding:
•inventory valuation adjustment; •unrealized loss (gain) on derivatives; •LIFO layer liquidation impacts associated with ourWashington inventory; and •RINs mark-to-market adjustments.
We define cost of revenues (excluding depreciation) as:
•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 RINs and environmental credit obligations,
•certain hydrocarbon fees and taxes, and
•the unrealized gain (loss) on derivatives and the inventory valuation
adjustment that we exclude from Adjusted Gross Margin.
The following tables present a reconciliation of Adjusted Gross Margin to the
most directly comparable GAAP financial measure, operating income (loss), on a
historical basis, for selected segments, for the periods indicated (in
thousands):
Three months ended June 30, 2022 Refining Logistics Retail
Operating income $ 168,798 $ 15,898 $ 5,525
Operating expense (excluding depreciation) 59,101 3,797 19,444
Depreciation and amortization 16,979 5,211 2,600
Loss (gain) on sale of assets, net - (12) -
Inventory valuation adjustment (7,557) - -
RINs mark-to-market adjustments 78,548 - -
Unrealized gain on derivatives (28,607) - -
Adjusted Gross Margin (1) $ 287,262 $ 24,894 $ 27,569
Three months ended June 30, 2021 Refining Logistics Retail
Operating income (loss) $ (99,119) $ 14,542 $ 12,651
Operating expense (excluding depreciation) 47,944 3,494 17,383
Depreciation and amortization 14,561 5,377 2,874
Loss (gain) on sale of assets, net 1,664 (21) (1,133)
Inventory valuation adjustment 29,657 - -
LIFO liquidation adjustment 2,263 - -
RINs mark-to-market adjustments 54,158 - -
Unrealized loss on derivatives 1,404 - -
Adjusted Gross Margin (2) $ 52,532 $ 23,392 $ 31,775
36
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Six months ended June 30, 2022 Refining Logistics Retail
Operating income $ 50,473 $ 25,750 $ 9,570
Operating expense (excluding depreciation) 117,401 7,570 38,775
Depreciation and amortization 32,312 10,298 5,291
Gain on sale of assets, net - (12) -
Inventory valuation adjustment 73,096 - -
RINs mark-to-market adjustments 89,850 - -
Unrealized gain on derivatives (13,155) - -
Adjusted Gross Margin (1) $ 349,977 $ 43,606 $ 53,636
Six months ended June 30, 2021 Refining Logistics Retail
Operating income (loss) $ (189,984) $ 24,619 $ 62,006
Operating expense (excluding depreciation) 101,282 7,390 34,337
Depreciation and amortization 28,625 10,631 5,534
Loss (gain) on sale of assets, net (19,595) (21) (44,786)
Inventory valuation adjustment 52,743 - -
LIFO liquidation adjustment 4,151 - -
RINs mark-to-market adjustments 131,060 - -
Unrealized gain on derivatives (2,608) - -
Adjusted Gross Margin (2) $ 105,674 $ 42,619 $ 57,091 ____________________________________________________________________________
(1)For the three and six months endedJune 30, 2022 , there was no impairment expense or LIFO liquidation adjustment recorded in Operating income (loss). (2)For the three and six months endedJune 30, 2021 , there was no impairment expense recorded in Operating income (loss).
Adjusted Net Income (Loss) and Adjusted EBITDA
Adjusted Net Income (Loss) is defined as Net income (loss) excluding:
•inventory valuation adjustment (which adjusts for timing differences to reflect the economics of our inventory financing agreements, including lower of cost or net realizable value adjustments, the impact of the embedded derivative repurchase or terminal obligations, contango (gains) and backwardation losses associated with ourWashington inventory and intermediation obligation, and purchase price allocation adjustments; beginning in 2022, this also includes the FIFO inventory (gains) losses associated with our titled manufactured inventory inHawaii ); •the LIFO layer liquidation impacts associated with ourWashington inventory; •RINs mark-to-market adjustments (which represents the income statement effect of reflecting our RINs liability on a net basis; beginning with financial results reported for the second quarter of 2022, this also includes the mark-to-market losses (gains) associated with our net RINs liability); •unrealized (gain) loss on derivatives; •acquisition and integration costs; •debt extinguishment and commitment costs; •increase in (release of) tax valuation allowance and other deferred tax items; •changes in the value of contingent consideration and common stock warrants; •severance costs; •(gain) loss on sale of assets; •impairment expense; •impairment expense associated with our investment in Laramie Energy and our share of Laramie Energy's asset impairment losses in excess of our basis difference; and •Par's share of Laramie Energy's unrealized loss (gain) on derivatives. 37 --------------------------------------------------------------------------------
Adjusted EBITDA is defined as Adjusted Net Income (Loss) excluding:
•D&A;
•interest expense and financing costs;
•equity losses (earnings) from Laramie Energy excluding Par's share of
unrealized loss (gain) on derivatives, impairment of Par's investment, and our
share of Laramie Energy's asset impairment losses in excess of our basis
difference; and
•income tax expense (benefit).
The following table presents a reconciliation of Adjusted Net Income (Loss)
and Adjusted EBITDA to the most directly comparable GAAP financial measure, Net
income (loss), on a historical basis for the periods indicated (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net Income (Loss) $ 149,125 $ (108,958) $ 12,074 $ (171,185)
Inventory valuation adjustment (7,557) 29,657 73,096 52,743
LIFO liquidation adjustment - 2,263 - 4,151
RINs mark-to-market adjustments 78,548 54,158 89,850 131,060
Unrealized loss (gain) on derivatives (28,607) 1,404 (13,155) (2,608)
Acquisition and integration costs - (352) 63 86
Debt extinguishment and commitment costs 5,672 6,628 5,672 8,135
Severance costs 35 - 2,263 16
Loss (gain) on sale of assets, net 15 510 15 (64,402)
Adjusted Net Income (Loss) (1) 197,231 (14,690) 169,878 (42,004)
Depreciation and amortization 25,583 23,548 49,363 46,428
Interest expense and financing costs, net 18,154 17,186 34,548 35,337
Income tax expense 1,125 607 688 607
Adjusted EBITDA (1) $ 242,093 $ 26,651 $ 254,477 $ 40,368 ________________________________________
(1)For the three and six months endedJune 30, 2022 and 2021, there was no change in value of contingent consideration, change in value of common stock warrants, change in valuation allowance or other deferred tax items, impairment expense, or equity losses (earnings) fromLaramie Energy, LLC , including impairments associated with our investment in Laramie Energy, our share of Laramie Energy's asset impairment losses in excess of our basis difference, and our share of Laramie Energy's unrealized loss (gain) on derivatives.
Factors Impacting Segment Results
Three months ended
Refining. Operating income for our refining segment was$168.8 million for the three months endedJune 30, 2022 , an increase of$267.9 million compared to an operating loss of$99.1 million for the three months endedJune 30, 2021 . The increase in profitability was primarily driven by an increase in product crack spreads across all of our refineries and a favorable change in FIFO benefit inHawaii , partially offset by unfavorable purchased product differentials and derivatives costs, including crack spread hedges, at ourHawaii refinery and a$20.1 million increase in RINs expenses. Logistics. Operating income for our logistics segment was$15.9 million for the three months endedJune 30, 2022 , an increase of$1.4 million compared to$14.5 million for the three months endedJune 30, 2021 . The increase is due to higher throughput revenues across ourWashington andWyoming assets. Retail. Operating income for our retail segment was$5.5 million for the three months endedJune 30, 2022 , a decrease of$7.2 million compared to$12.7 million for the three months endedJune 30, 2021 . The decrease was primarily due to a 10% decline in fuel volumes and a 5% decrease in fuel margins related to higher crude oil prices and higher operating expenses in the three months endedJune 30, 2022 related to higher planned repairs and maintenance expenses, increased employee costs, and higher credit card processing fees due to increased gasoline prices. 38 --------------------------------------------------------------------------------
Six months ended
Refining. Operating income for our refining segment was$50.5 million for the six months endedJune 30, 2022 , an increase of$240.5 million compared to an operating loss of$190.0 million for the six months endedJune 30, 2021 . The increase in profitability was primarily driven by an increase in product crack spreads across all of our refineries, a$47.8 million decrease in RINs expenses, and a favorable change in FIFO benefit inHawaii , partially offset by unfavorable purchased product differentials and derivatives costs, including crack spread hedges, and fuel burn costs at ourHawaii refinery , higher costs associated with our inventory financing agreements, and a 4% decrease in refining sales volume primarily related to theWashington refinery turnaround in 2022. Other factors impacting our results period over period include a gain on sale of assets of$19.6 million in the six months endedJune 30, 2021 primarily related to the 2021 Hawaii sale-leaseback transactions we closed in the first quarter of 2021 with no such gain in 2022. Logistics. Operating income for our logistics segment was$25.8 million for the six months endedJune 30, 2022 , which was relatively consistent with$24.6 million for the six months endedJune 30, 2021 . Retail. Operating income for our retail segment was$9.6 million for the six months endedJune 30, 2022 , a decrease of$52.4 million compared to$62.0 million for the six months endedJune 30, 2021 . The decrease in profitability is primarily due to a gain on sale of assets of$44.8 million in the six months endedJune 30, 2021 primarily related to the 2021 Hawaii sale-leaseback transactions we closed in the first quarter of 2021 with no such gain in 2022 and higher operating expenses in the six months endedJune 30, 2022 primarily related to higher planned repairs and maintenance expenses, higher rent expense related to the additional leases from our 2021 Hawaii sale-leaseback transactions, and higher credit card processing fees due to increased gasoline prices. Adjusted Gross Margin
Three months ended
Refining. For the three months endedJune 30, 2022 , our refining Adjusted Gross Margin was$287.3 million , an increase of$234.8 million compared to$52.5 million for the three months endedJune 30, 2021 . The increase was primarily driven by improved crack spreads partially offset by unfavorable realized derivatives costs, including crack spread hedges, higher purchased product differentials, and higher inventory financing costs primarily at ourHawaii refinery . Adjusted Gross Margin for theHawaii refinery increased from$2.73 per barrel during the three months endedJune 30, 2021 to$18.71 per barrel during the three months endedJune 30, 2022 primarily due to improved crack spreads, partially offset by unfavorable crude and purchased product differentials, unfavorable realized derivatives, and higher costs associated with our inventory financing agreement. Adjusted Gross Margin for theWyoming refinery increased by$28.24 per barrel primarily due to improved crack spreads. Adjusted Gross Margin for theWashington refinery increased by$18.53 per barrel primarily due to improved crack spreads, partially offset by unfavorable feedstock costs. Logistics. For the three months endedJune 30, 2022 , our logistics Adjusted Gross Margin was$24.9 million , an increase of$1.5 million compared to$23.4 million for the three months endedJune 30, 2021 . The increase is primarily due to higher throughput revenues across ourWashington andWyoming assets. Retail. For the three months endedJune 30, 2022 , our retail Adjusted Gross Margin was$27.6 million , a decrease of$4.2 million compared to$31.8 million for the three months endedJune 30, 2021 . The decrease was primarily due to a 10% decline in sales volumes and a 5% decrease in fuel margins related to higher crude oil prices.
Six months ended
Refining. For the six months endedJune 30, 2022 , our refining Adjusted Gross Margin was$350.0 million , an increase of$244.3 million compared to$105.7 million for the six months endedJune 30, 2021 . The increase was primarily due to favorable crack spreads across all our refineries partially offset by unfavorable purchased product differentials and higher realized derivatives costs, including crack spread hedges, inventory financing agreement, fuel burn, and refined product costs. Adjusted Gross Margin for theHawaii refinery improved from$3.51 per barrel during the six months endedJune 30, 2021 to$11.22 per barrel during the six months endedJune 30, 2022 primarily due to improved crack spreads, partially offset by unfavorable crude and purchased product differentials, unfavorable realized derivatives, and higher costs associated with our inventory financing agreement. Adjusted Gross Margin for theWyoming refinery increased by$21.59 per barrel primarily due to improved crack spreads and a favorable FIFO change of$12.7 million , partially offset by unfavorable feedstock costs. Adjusted Gross Margin for theWashington refinery increased by$12.03 per barrel primarily due to favorable crack spreads partially offset by unfavorable feedstock costs and reduced sales volumes related to the 2022 turnaround. 39 --------------------------------------------------------------------------------
Logistics. For the six months ended
Retail. For the six months endedJune 30, 2022 , our retail Adjusted Gross Margin was$53.6 million , a decrease of$3.5 million compared to$57.1 million for the six months endedJune 30, 2021 . The decrease was primarily due to a a 1% decrease in fuel margins related to higher crude oil prices and a 5% decline in fuel sales volumes.
Discussion of Consolidated Results
Three months ended
Revenues. For the three months endedJune 30, 2022 , revenues were$2.1 billion , a$0.9 billion increase compared to$1.2 billion for the three months endedJune 30, 2021 . The increase was primarily due to an increase of$0.9 billion in third-party refining segment revenue as a result of increases in Brent and WTI crude oil prices and an increase in average product crack spreads, partially offset by a 2% decrease in refining sales volumes. Average Brent crude oil prices increased to$111.98 per barrel during the second quarter of 2022 compared to$69.08 per barrel during the second quarter of 2021, and average WTI crude oil prices increased to$108.52 per barrel during the second quarter of 2022 compared to$66.17 per barrel during the second quarter of 2021. Revenues at our retail segment increased$28.8 million primarily due to a 48% increase in fuel prices. Cost of Revenues (Excluding Depreciation). For the three months endedJune 30, 2022 , cost of revenues (excluding depreciation) was$1.8 billion , a$0.6 billion increase compared to$1.2 billion for the three months endedJune 30, 2021 . The increase was primarily driven by higher Brent and WTI crude oil prices as discussed above and unfavorable purchased product differentials and derivatives costs at ourHawaii refinery , partially offset by lower refining sales volumes as discussed above and favorable changes in FIFO benefit at ourHawaii refinery . Other factors impacting our results period over period include 66% higher fuel costs at our retail segment. Operating Expense (Excluding Depreciation). For the three months endedJune 30, 2022 , operating expense (excluding depreciation) was$82.3 million , a$13.5 million increase when compared to$68.8 million for the three months endedJune 30, 2021 . The increase in operating expenses was primarily driven by higher utility and maintenance costs and increased employee costs. Depreciation and Amortization. For the three months endedJune 30, 2022 , D&A was$25.6 million , an increase of$2.1 million compared to$23.5 million for the three months endedJune 30, 2021 . The increase was primarily due to the amortization of ourWashington refinery turnaround projects completed in the first quarter of 2022. Loss on Sale of Assets, Net. During the three months endedJune 30, 2022 , there was an immaterial loss on sale of assets. During the three months endedJune 30, 2021 , we recorded a loss of$0.5 million primarily related to the sale and disposal of certain retail locations.
General and Administrative Expense (Excluding Depreciation). For the three
months ended
Interest Expense and Financing Costs, Net. For the three months endedJune 30, 2022 , our interest expense and financing costs were$18.2 million , an increase of$1.0 million compared to$17.2 million for the three months endedJune 30, 2021 . The increase was primarily due to higher fees related to our inventory financing, partially offset by lower outstanding debt balances driven by the partial redemption of the outstanding 12.875% Senior Secured Notes inJune 2021 and the repurchase and cancellation of a portion of such notes in the second quarter of 2022, and the final maturity of the 5.00% Convertible Senior Notes onJune 15, 2021 . Please read Note 7-Inventory Financing Agreements and Note 9-Debt to our condensed consolidated financial statements for further discussion on our intermediation agreements and indebtedness, respectively. Debt Extinguishment and Commitment Costs. For the three months endedJune 30, 2021 , our debt extinguishment costs were$6.6 million and primarily represented extinguishment costs associated with the redemption of$36.8 million of 12.875% Senior Secured Notes inJune 2021 . For the three months endedJune 30, 2022 , our debt extinguishment and commitment costs were$5.7 million and primarily represented extinguishment costs associated with the repurchase and cancellation of an additional$36.9 million of 12.875% Senior Secured Notes in the second quarter of 2022. Please read Note 9-Debt to our condensed consolidated financial statements for further discussion on our indebtedness. 40 -------------------------------------------------------------------------------- Income Taxes. For the three months endedJune 30, 2022 , we recorded income tax expense of$1.1 million primarily related to increased taxable income. For the three months endedJune 30, 2021 , we recorded an income tax expense of$0.6 million primarily related to foreign taxes.
Six months ended
Revenues. For the six months endedJune 30, 2022 , revenues were$3.5 billion , a$1.4 billion increase compared to$2.1 billion for the six months endedJune 30, 2021 . The increase was primarily due to an increase of$1.3 billion in third-party revenues at our refining segment, primarily related to higher crude oil prices and crack spreads across all our refining locations, partially offset by a 4% decrease in refining sales volume, primarily related to theWashington refinery turnaround in 2022. Average Brent crude oil prices rose to$104.98 in the six months endedJune 30, 2022 compared to$65.22 per barrel in the six months endedJune 30, 2021 , and average WTI crude oil prices rose to$101.8 per barrel during the six months endedJune 30, 2022 compared to$62.18 in the six months endedJune 30, 2021 . Revenues at our retail segment increased$57.5 million primarily due to a 45% increase in fuel prices. Cost of Revenues (Excluding Depreciation). For the six months endedJune 30, 2022 , cost of revenues (excluding depreciation) was$3.2 billion , a$1.1 billion increase compared to$2.1 billion for the six months endedJune 30, 2021 . The increase was primarily due to increases in Brent and WTI crude oil prices as discussed above, higher purchased product differentials and derivative costs at ourHawaii refinery , and higher costs associated with our inventory financing agreements, partially offset by a 4% decrease in refining sales volume and a favorable change in FIFO benefit at ourHawaii refinery . Other factors impacting our results period over period include 61% higher fuel costs at our retail segment. Operating Expense (Excluding Depreciation). For the six months endedJune 30, 2022 , operating expense (excluding depreciation) was$163.7 million , an increase of$20.7 million when compared to$143.0 million for the six months endedJune 30, 2021 . The increase was primarily driven by higher utility and maintenance expenses, increased employee costs, and higher rental expenses primarily related to the leases from ourHawaii sale-leaseback transactions in 2021. Depreciation and Amortization. For the six months endedJune 30, 2022 , D&A was$49.4 million , an increase of$3.0 million compared to$46.4 million for the six months endedJune 30, 2021 . The increase was primarily due to the amortization of ourWashington refinery turnaround projects completed in the first quarter of 2022. Loss on Sale of Assets, Net. For the six months endedJune 30, 2022 , there was an immaterial loss on sale of assets, net. For the six months endedJune 30, 2021 , the gain on sale of assets, net was approximately$64.4 million and primarily related to theHawaii sale-leaseback transactions we closed in the first quarter of 2021. General and Administrative Expense (Excluding Depreciation). For the six months endedJune 30, 2022 , general and administrative expense (excluding depreciation) was$31.3 million , an increase of$7.2 million compared to$24.1 million for the six months endedJune 30, 2021 . The increase was primarily due to higher employee costs. Interest Expense and Financing Costs, Net. For the six months endedJune 30, 2022 , our interest expense and financing costs were$34.5 million , a decrease of$0.8 million when compared to$35.3 million for the six months endedJune 30, 2021 . The decrease was primarily due to lower outstanding debt balances in 2022 driven by early partial repayments of the outstanding 12.875% Senior Secured Notes in the second quarters of 2021 and 2022 and the full repayment at maturity of the 5.00% Convertible Senior Notes inJune 2021 , partially offset by higher fees related to our inventory financing. Please read Note 7-Inventory Financing Agreements and Note 9-Debt to our condensed consolidated financial statements for further discussion on our intermediation agreements and indebtedness, respectively. Debt Extinguishment and Commitment Costs. For the six months endedJune 30, 2021 , our debt extinguishment and commitment costs were$8.1 million and primarily represented$6.6 million in extinguishment costs associated with the redemption of$36.8 million of 12.875% Senior Secured Notes inJune 2021 and$1.4 million in extinguishment costs associated with the repayment of the Retail Property Term Loan onFebruary 23, 2021 . For the six months endedJune 30, 2022 , our debt extinguishment and commitment costs were$5.7 million and primarily represented extinguishment costs associated with the repurchase and cancellation of an additional$36.9 million of 12.875% Senior Secured Notes in the second quarter of 2022. Please read Note 9-Debt to our condensed consolidated financial statements for further discussion on our indebtedness.
Gain on Curtailment of Pension Obligation. For the six months ended
41
--------------------------------------------------------------------------------
Income Taxes. For the six months ended June 30, 2022 , we recorded an income
tax expense of $0.7 million primarily related to increased taxable income. For
the six months ended June 30, 2021 , we recorded an income tax expense of $0.6
million primarily driven by foreign taxes.
Consolidating Condensed Financial Information
OnDecember 21, 2017 ,Par Petroleum, LLC (the "Issuer") issued its 7.75% Senior Secured Notes due 2025 in a private offering under Rule 144A and Regulation S of the Securities Act. OnJanuary 11, 2019 , the Issuers (defined below) entered into a term loan and guaranty agreement withGoldman Sachs Bank USA , as administrative agent, and the lenders party thereto with respect to a$250.0 million term loan (the "Term Loan B"). OnJune 5, 2020 , the Issuers issued their 12.875% Senior Secured Notes due 2026 in a private offering under Rule 144A and Regulation S of the Securities Act. The 7.75% Senior Secured Notes, the Term Loan B, and the 12.875% Senior Secured Notes were co-issued byPar Petroleum Finance Corp. (together with the Issuer, the "Issuers"), which has no independent assets or operations. The 7.75% Senior Secured Notes, Term Loan B, and 12.875% Senior Secured Notes are guaranteed on a senior unsecured basis only as to payment of principal and interest byPar Pacific Holdings, Inc. (the "Parent") and are guaranteed on a senior secured basis by all of the subsidiaries ofPar Petroleum, LLC . The following supplemental condensed consolidating financial information reflects (i) the Parent's separate accounts, (ii)Par Petroleum, LLC and its consolidated subsidiaries' accounts (which are all guarantors of the 7.75% Senior Secured Notes, Term Loan B, and 12.875% Senior Secured Notes), (iii) the accounts of subsidiaries of the Parent that are not guarantors of the 7.75% Senior Secured Notes, Term Loan B, or 12.875% Senior Secured Notes and consolidating adjustments and eliminations, and (iv) the Parent's consolidated accounts for the dates and periods indicated. For purposes of the following condensed consolidating information, the Parent's investment in its subsidiaries is accounted for under the equity method of accounting (dollar amounts in thousands). 42 -------------------------------------------------------------------------------- As of June 30, 2022 Non-Guarantor Par Pacific Parent Issuer and Subsidiaries and Holdings, Inc. Guarantor Subsidiaries Eliminations and Subsidiaries ASSETS Current assets Cash and cash equivalents$ 4,804 $ 181,345 $ 29$ 186,178 Restricted cash 330 3,670 - 4,000 Trade accounts receivable - 370,771 2 370,773 Inventories - 1,160,166 - 1,160,166 Prepaid and other current assets 6,489 123,753 (4) 130,238 Due from related parties 103,766 - (103,766) - Total current assets 115,389 1,839,705 (103,739) 1,851,355 Property, plant, and equipment Property, plant, and equipment 19,740 1,173,052 3,955 1,196,747 Less accumulated depreciation and amortization (14,983) (338,875) (3,027) (356,885) Property, plant, and equipment, net 4,757 834,177 928 839,862 Long-term assets Operating lease right-of-use assets 2,969 330,088 - 333,057 Investment in subsidiaries 229,798 - (229,798) - Intangible assets, net - 14,905 - 14,905 Goodwill - 124,664 2,598 127,262 Other long-term assets 723 90,347 (12,171) 78,899 Total assets$ 353,636 $ 3,233,886 $ (342,182) $ 3,245,340 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ -$ 10,874 $ -$ 10,874 Obligations under inventory financing agreements - 1,189,448 - 1,189,448 Accounts payable 1,523 247,687 1,479 250,689 Accrued taxes 22 37,173 - 37,195 Operating lease liabilities 556 51,122 - 51,678 Other accrued liabilities 2,064 567,616 371 570,051 Due to related parties 66,995 42,470 (109,465) - Total current liabilities 71,160 2,146,390 (107,615) 2,109,935 Long-term liabilities Long-term debt, net of current maturities - 508,997 - 508,997 Finance lease liabilities 2 11,673 (4,461) 7,214 Operating lease liabilities 3,745 283,903 - 287,648 Other liabilities - 39,375 13,442 52,817 Total liabilities 74,907 2,990,338 (98,634) 2,966,611
Commitments and contingencies Stockholders' equity Preferred stock - - - - Common stock 602 - - 602 Additional paid-in capital 827,623 409,686 (409,686) 827,623 Accumulated earnings (deficit) (551,998) (167,943) 167,943 (551,998) Accumulated other comprehensive income (loss) 2,502 1,805 (1,805) 2,502 Total stockholders' equity 278,729 243,548 (243,548) 278,729
Total liabilities and stockholders' equity
43
--------------------------------------------------------------------------------
As of December 31, 2021
Non-Guarantor Par Pacific
Parent Issuer and Subsidiaries and Holdings, Inc.
Guarantor Subsidiaries Eliminations and Subsidiaries
ASSETS
Current assets
Cash and cash equivalents $ 4,086 $ 108,105 $ 30 $ 112,221
Restricted cash 330 3,670 - 4,000
Trade accounts receivable - 195,104 4 195,108
Inventories - 790,317 - 790,317
Prepaid and other current assets 15,664 12,864 (3) 28,525
Due from related parties 94,676 - (94,676) -
Total current assets 114,756 1,110,060 (94,645) 1,130,171
Property, plant, and equipment
Property, plant, and equipment 19,535 1,156,906 3,956 1,180,397 Less accumulated depreciation and amortization (13,869) (307,091) (2,932) (323,892) Property, plant, and equipment, net 5,666 849,815 1,024 856,505 Long-term assets Operating lease right-of-use assets 3,280 380,544 - 383,824 Investment in subsidiaries 207,483 - (207,483) - Intangible assets, net - 16,234 - 16,234 Goodwill - 124,664 2,598 127,262 Other long-term assets 724 57,382 (1,851) 56,255 Total assets$ 331,909 $ 2,538,699 $ (300,357) $ 2,570,251 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ -$ 10,841 $ -$ 10,841 Obligations under inventory financing agreements - 737,704 - 737,704 Accounts payable 1,386 151,676 1,481 154,543 Accrued taxes 48 28,593 - 28,641 Operating lease liabilities 608 53,032 - 53,640 Other accrued liabilities 9,805 360,246 373 370,424 Due to related parties 50,195 10,261 (60,456) - Total current liabilities 62,042 1,352,353 (58,602) 1,355,793 Long-term liabilities Long-term debt, net of current maturities - 553,717 - 553,717 Finance lease liabilities 17 12,192 (4,518) 7,691 Operating lease liabilities 4,150 330,944 - 335,094 Other liabilities - 63,098 (10,842) 52,256 Total liabilities 66,209 2,312,304 (73,962) 2,304,551
Commitments and contingencies Stockholders' equity Preferred stock - - - - Common stock 602 - - 602 Additional paid-in capital 821,713 409,686 (409,686) 821,713 Accumulated earnings (deficit) (559,117) (185,096) 185,096 (559,117) Accumulated other comprehensive income (loss) 2,502 1,805 (1,805) 2,502 Total stockholders' equity 265,700 226,395 (226,395) 265,700
Total liabilities and stockholders' equity
44
--------------------------------------------------------------------------------
Three Months Ended
Non-Guarantor Par Pacific
Parent Issuer and Subsidiaries and Holdings, Inc.
Guarantor Subsidiaries Eliminations and Subsidiaries
Revenues $ - $ 2,106,284 $ 48 $ 2,106,332
Operating expenses
Cost of revenues (excluding depreciation) - 1,808,925 - 1,808,925
Operating expense (excluding depreciation) - 82,342 - 82,342
Depreciation and amortization 576 24,960 47 25,583
Loss (gain) on sale of assets, net 27 (12) - 15
General and administrative expense
(excluding depreciation) 4,756 10,682 - 15,438
Acquisition and integration costs - - - -
Total operating expenses 5,359 1,926,897 47 1,932,303
Operating income (loss) (5,359) 179,387 1 174,029
Other income (expense)
Interest expense and financing costs, net (4) (18,242) 92 (18,154)
Debt extinguishment and commitment costs - (5,672) - (5,672)
Other income (expense), net 3 44 - 47
Equity earnings (losses) from subsidiaries 154,485 - (154,485) -
Total other income (expense), net 154,484 (23,870) (154,393) (23,779)
Income (loss) before income taxes 149,125 155,517 (154,392) 150,250
Income tax benefit (expense) (1) - (38,096) 36,971 (1,125)
Net income (loss) $ 149,125 $ 117,421 $ (117,421) $ 149,125
Adjusted EBITDA $ (4,753) $ 246,798 $ 48 $ 242,093
45--------------------------------------------------------------------------------
Three Months Ended
Non-Guarantor Par Pacific
Parent Issuer and Subsidiaries and Holdings, Inc.
Guarantor Subsidiaries Eliminations and Subsidiaries
Revenues $ - $ 1,217,501 $ 24 $ 1,217,525
Operating expenses
Cost of revenues (excluding depreciation) - 1,197,298 - 1,197,298
Operating expense (excluding depreciation) - 68,821 - 68,821
Depreciation and amortization 618 22,882 48 23,548
Loss (gain) on sale of assets, net - 569 (59) 510
General and administrative expense
(excluding depreciation) 3,104 9,097 - 12,201
Acquisition and integration costs (352) - - (352)
Total operating expenses 3,370 1,298,667 (11) 1,302,026
Operating income (loss) (3,370) (81,166) 35 (84,501)
Other income (expense)
Interest expense and financing costs, net (1,204) (16,074) 92 (17,186)
Debt extinguishment and commitment costs - (6,628) - (6,628)
Gain on curtailment of pension obligation - - - -
Other income (expense), net (6) (31) 1 (36)
Equity earnings (losses) from subsidiaries (104,361) - 104,361 -
Total other income (expense), net (105,571) (22,733) 104,454 (23,850)
Income (loss) before income taxes (108,941) (103,899) 104,489 (108,351)
Income tax benefit (expense) (1) (17) 28,655 (29,245) (607)
Net income (loss) $ (108,958) $ (75,244) $ 75,244 $ (108,958)
Adjusted EBITDA $ (3,110) $ 29,736 $ 25 $ 26,651
46
--------------------------------------------------------------------------------
Six Months Ended June 30, 2022
Non-Guarantor Par Pacific
Parent Issuer and Subsidiaries and Holdings, Inc.
Guarantor Subsidiaries Eliminations and Subsidiaries
Revenues $ - $ 3,456,564 $ 61 $ 3,456,625
Operating expenses
Cost of revenues (excluding depreciation) - 3,159,174 - 3,159,174
Operating expense (excluding depreciation) - 163,746 - 163,746
Depreciation and amortization 1,204 48,063 96 49,363
Loss (gain) on sale of assets, net 27 (12) - 15
General and administrative expense
(excluding depreciation) 8,934 22,397 - 31,331
Acquisition and integration costs 63 - - 63
Total operating expenses 10,228 3,393,368 96 3,403,692
Operating income (loss) (10,228) 63,196 (35) 52,933
Other income (expense)
Interest expense and financing costs, net (9) (34,725) 186 (34,548)
Debt extinguishment and commitment costs - (5,672) - (5,672)
Other income (expense), net (4) 53 - 49
Equity earnings (losses) from subsidiaries 22,315 - (22,315) -
Total other income (expense), net 22,302 (40,344) (22,129) (40,171)
Income (loss) before income taxes 12,074 22,852 (22,164) 12,762
Income tax benefit (expense) (1) - (5,699) 5,011 (688)
Net income (loss) $ 12,074 $ 17,153 $ (17,153) $ 12,074
Adjusted EBITDA $ (8,587) $ 263,003 $ 61 $ 254,477
47--------------------------------------------------------------------------------
Six Months Ended
Non-Guarantor Par Pacific
Parent Issuer and Subsidiaries and Holdings, Inc.
Guarantor Subsidiaries Eliminations and Subsidiaries
Revenues $ - $ 2,106,181 $ 24 $ 2,106,205
Operating expenses
Cost of revenues (excluding depreciation) - 2,086,161 - 2,086,161
Operating expense (excluding depreciation) - 143,726 (717) 143,009
Depreciation and amortization 1,284 45,001 143 46,428
Loss (gain) on sale of assets, net - (10,639) (53,763) (64,402)
General and administrative expense
(excluding depreciation) 6,209 17,877 - 24,086
Acquisition and integration costs 86 - - 86
Total operating expenses 7,579 2,282,126 (54,337) 2,235,368
Operating income (loss) (7,579) (175,945) 54,361 (129,163)
Other income (expense)
Interest expense and financing costs, net (2,494) (32,971) 128 (35,337)
Debt extinguishment and commitment costs - (6,719) (1,416) (8,135)
Gain on curtailment of pension obligation - 2,032 - 2,032
Other income (expense), net (13) 38 - 25
Equity earnings (losses) from subsidiaries (161,082) - 161,082 -
Total other income (expense), net (163,589) (37,620) 159,794 (41,415)
Income (loss) before income taxes (171,168) (213,565) 214,155 (170,578)
Income tax benefit (expense) (1) (17) 51,528 (52,118) (607)
Net income (loss) $ (171,185) $ (162,037) $ 162,037 $ (171,185)
Adjusted EBITDA $ (6,222) $ 45,849 $ 741 $ 40,368 ________________________________________
(1) The income tax benefit (expense) of the Parent Guarantor and Issuer and
Subsidiaries is determined using the separate return method. The Non-Guarantor
Subsidiaries and Eliminations column includes tax benefits recognized at the Par
consolidated level that are primarily associated with changes to the
consolidated valuation allowance and other deferred tax balances.
48
--------------------------------------------------------------------------------Non-GAAP Financial Measures
Adjusted EBITDA for the supplemental consolidating condensed financial information, which is segregated at the "Parent Guarantor," "Issuer and Subsidiaries," and "Non-Guarantor Subsidiaries and Eliminations" levels, is calculated in the same manner as for thePar Pacific Holdings, Inc. Adjusted EBITDA calculations. See "Results of Operations - Non-GAAP Performance Measures - Adjusted Net Income (Loss) and Adjusted EBITDA" above. The following tables present a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, Net income (loss), on a historical basis for the periods indicated (in thousands):
Three Months Ended
Non-Guarantor Par Pacific
Parent Issuer and Subsidiaries and Holdings, Inc. and
Guarantor Subsidiaries Eliminations Subsidiaries
Net income (loss) $ 149,125 $
117,421
- (7,557) - (7,557)
RINs mark-to-market adjustments - 78,548 - 78,548
Unrealized loss (gain) on derivatives - (28,607) - (28,607)
Acquisition and integration costs - - - -
Debt extinguishment and commitment costs - 5,672 - 5,672
Severance costs - 35 - 35
Loss (gain) on sale of assets, net 27 (12) - 15
Depreciation and amortization 576 24,960 47 25,583
Interest expense and financing costs, net 4 18,242 (92) 18,154
Equity losses (income) from subsidiaries (154,485) - 154,485 -
Income tax expense (benefit) - 38,096 (36,971) 1,125
Adjusted EBITDA (3) $ (4,753) $ 246,798 $ 48 $ 242,093 Three Months Ended
Non-Guarantor Par Pacific
Parent Issuer and Subsidiaries and Holdings, Inc. and
Guarantor Subsidiaries Eliminations Subsidiaries
Net income (loss) $ (108,958) $ (75,244) $ 75,244 $ (108,958)
Inventory valuation adjustment - 29,657 - 29,657
LIFO liquidation adjustment - 2,263 - 2,263
RINs mark-to-market adjustments - 54,158 - 54,158
Unrealized loss on derivatives - 1,404 - 1,404
Acquisition and integration costs (352) - - (352)
Debt extinguishment and commitment costs - 6,628 - 6,628
Loss (gain) on sale of assets, net - 569 (59) 510
Depreciation and amortization 618 22,882 48 23,548
Interest expense and financing costs, net 1,204 16,074 (92) 17,186
Equity losses (income) from subsidiaries 104,361 - (104,361) -
Income tax expense (benefit) 17 (28,655) 29,245 607
Adjusted EBITDA (3) $ (3,110) $ 29,736 $ 25 $ 26,651
49--------------------------------------------------------------------------------
Six Months Ended
Non-Guarantor Par Pacific
Parent Issuer and Subsidiaries and Holdings, Inc. and
Guarantor Subsidiaries Eliminations Subsidiaries
Net income (loss) $ 12,074 $ 17,153 $ (17,153) $ 12,074 Inventory valuation adjustment
- 73,096 - 73,096
RINs mark-to-market adjustments - 89,850 - 89,850
Unrealized loss (gain) on derivatives - (13,155) - (13,155)
Acquisition and integration costs 63 - - 63
Debt extinguishment and commitment costs - 5,672 - 5,672
Severance costs 351 1,912 - 2,263
Loss (gain) on sale of assets, net 27 (12) - 15
Depreciation and amortization 1,204 48,063 96 49,363
Interest expense and financing costs, net 9 34,725 (186) 34,548
Equity losses (income) from subsidiaries (22,315) - 22,315 -
Income tax expense (benefit) - 5,699 (5,011) 688
Adjusted EBITDA (1) $ (8,587) $ 263,003 $ 61 $ 254,477 Six Months Ended
Non-Guarantor Par Pacific
Parent Issuer and Subsidiaries and Holdings, Inc. and
Guarantor Subsidiaries Eliminations Subsidiaries
Net income (loss) $ (171,185) $
(162,037) $ 162,037
- 52,743 - 52,743
LIFO liquidation adjustment - 4,151 - 4,151
RINs mark-to-market adjustments - 131,060 - 131,060
Unrealized loss (gain) on derivatives - (2,608) - (2,608)
Acquisition and integration costs 86 - - 86
Debt extinguishment and commitment costs - 6,719 1,416 8,135
Severance costs - 16 - 16
Loss (gain) on sale of assets, net - (10,639) (53,763) (64,402)
Depreciation and amortization 1,284 45,001 143 46,428
Interest expense and financing costs, net 2,494 32,971 (128) 35,337
Equity losses (income) from subsidiaries 161,082 - (161,082) -
Income tax expense (benefit) 17 (51,528) 52,118 607
Adjusted EBITDA (1) $ (6,222) $ 45,849 $ 741 $ 40,368
________________________________________
(1)For the three and six months endedJune 30, 2022 and 2021, there was no change in valuation allowance and other deferred tax items, change in value of common stock warrants, impairment expense, impairment of investment inLaramie Energy, unrealized gain on derivatives included in equity earnings from Laramie Energy, or equity losses from Laramie Energy. For the three and six months endedJune 30, 2022 , there was no LIFO liquidation adjustment.
Liquidity and Capital Resources
Our liquidity and capital requirements are primarily a function of our debt maturities and debt service requirements and contractual obligations, capital expenditures, turnaround outlays, and working capital needs. Examples of working capital needs include purchases and sales of commodities and associated margin and collateral requirements, facility maintenance costs, and other costs such as payroll. Our primary sources of liquidity are cash flows from operations, cash on hand, amounts available under our credit agreements, and access to capital markets.
Our liquidity position as of
50
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As of June 30, 2022 , we had access to the ABL Credit Facility, the J. Aron
Discretionary Draw Facility, the MLC receivable advances, and cash on hand of
$186.2 million . In addition, we have the Supply and Offtake Agreement with
J. Aron and the Washington Refinery Intermediation Agreement, which are used to
finance the majority of the inventory at our Hawaii and Washington refineries,
respectively. Generally, the primary uses of our capital resources have been in
the operations of our refining and retail segments, payments related to
acquisitions, and to repay or refinance indebtedness.
We believe our cash flows from operations and available capital resources will
be sufficient to meet our current capital expenditures, working capital, and
debt service requirements for the next 12 months. We may seek to raise
additional debt or equity capital to fund any other significant changes to our
business or to refinance existing debt. We cannot offer any assurances that such
capital will be available in sufficient amounts or at an acceptable cost.
We may from time to time seek to retire or repurchase our 7.75% Senior Secured
Notes, our 12.875% Senior Secured Notes, or our common stock through cash
purchases and/or exchanges for equity securities, in open market purchases,
privately negotiated transactions, or otherwise. Such repurchases or exchanges,
if any, will depend on prevailing market conditions, our liquidity requirements,
contractual restrictions, and other factors. The amounts involved may be
material. The Term Loan B Facility may also require annual prepayments of
principal with a variable percentage of our excess cash flow, 50% or 25%
depending on our consolidated year end secured leverage ratio (as defined in the
Term Loan B Facility agreement).
Cash Flows
The following table summarizes cash activities for the six months ended
Six
Months Ended
2022 2021
Net cash provided by operating activities $ 27,657 $ 1,815
Net cash provided by (used in) investing activities (28,952) 88,847
Net cash provided by financing activities 75,252 15,358
Cash flows for the six months ended
Net cash provided by operating activities for the six months endedJune 30, 2022 was driven primarily by non-cash charges to operations of approximately$49.9 million and net income of$12.1 million , partially offset by net cash used for changes in operating assets and liabilities of approximately$34.3 million . Non-cash charges to operations consisted primarily of the following adjustments: • depreciation and amortization expenses of$49.4 million ; • stock based compensation costs of$5.8 million ; and • debt commitment and extinguishment costs of$5.7 million ; partially offset by • unrealized gain on derivatives contracts of$13.2
million.
Net cash used for changes in operating assets and liabilities resulted primarily from:
• net increases in our inventories and accounts receivable resulting from
higher crude oil and refined product prices and higher inventory
volumes at our Hawaii refinery ; and
• increase in prepaid and other primarily driven by $66.1 million
increase in collateral posted with broker to support commodity
derivative positions;
partially offset by
• net increases in our Supply and Offtake
Agreement and
Refinery Intermediation Agreement obligations and accounts payable; and
• an increase in gross environmental credit obligations primarily related
to current period production volumes and increases in RINs prices.
Net cash used in investing activities for the six months endedJune 30, 2022 consisted primarily of$29.0 million in additions to property, plant, and equipment driven by profit improvement and turnaround projects including crude recovery and debottlenecking projects at ourTacoma refinery , maintenance and tank replacement projects at ourWyoming refinery , and co-generation engine and combustion and tank projects at ourHawaii refinery . 51 --------------------------------------------------------------------------------
Net cash provided by financing activities was approximately
• net borrowings under the J. Aron Discretionary Draw Facility and MLC
receivable advances of $142.3 million ;
partially offset by
• net repayments of debt of $57.0 million primarily driven by the partial
repurchase and cancellation of our 7.75% Senior Secured Notes and
12.875% Senior Secured Notes;
• repurchases of common stock of $6.5 million .
Cash flows for the six months ended
Net cash provided by operating activities was approximately$1.8 million for the six months endedJune 30, 2021 , which resulted from a net loss of approximately$171.2 million , partially offset by net cash provided by changes in operating assets and liabilities of approximately$191.2 million and non-cash earnings from operations of approximately$18.2 million . The change in our operating assets and liabilities for the six months endedJune 30, 2021 was primarily due to an increase in our gross environmental credit obligations of$204.0 million and a net increase in our Supply and Offtake Agreement andWashington Refinery Intermediation Agreement obligations of$199.6 million , partially offset by increases in inventories of$184.1 million and accounts receivable of$99.5 million . Net cash provided by changes in operating assets and liabilities also includes an increase of$5.7 million in deferred turnaround costs. Net cash provided by investing activities was approximately$88.8 million for the six months endedJune 30, 2021 and primarily related to proceeds received from the 2021 Hawaii sale-leaseback transactions partially offset by$14.0 million of additions to property, plant, and equipment. Net cash provided by financing activities for the six months endedJune 30, 2021 was approximately$15.4 million , which consisted primarily of proceeds of$87.2 million from ourMarch 2021 equity offering of common stock and net borrowings associated with the J. Aron deferred payment and MLC receivable advances of approximately$76.0 million , partially offset by net debt and insurance premium repayments of approximately$141.3 million and$5.6 million in extinguishment costs related to the repayment of the Retail Property Term Loan and the redemption of a portion of the 12.875% Senior Secured Notes.
Cash Requirements
There have been no material changes to the cash requirements disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , outside the ordinary course of business except as follows: Washington Refinery Intermediation Agreement. We and MLC entered into amendments to the Washington Refinery Intermediation Agreement onMarch 9, 2022 , andMay 9, 2022 , which, among other things, increased the MLC receivable advances. Please read Note 7-Inventory Financing Agreements for more information.
Supply and Offtake Agreement. We and
ABL Credit Facility. OnFebruary 2, 2022 , the ABL Borrowers entered into the ABL Loan Agreement with certain lenders andBank of America, N.A ., which amended and restated the first Loan and Security Agreement in its entirety. The ABL Loan Agreement was further amended onMarch 30, 2022 . Please read Note 9-Debt for more information. Debt Repayments. During the six months endedJune 30, 2022 , we repurchased and cancelled$5.0 million and$36.9 million in aggregate principal amounts of the 7.75% Senior Secured Notes and 12.875% Senior Secured Notes, respectively. Please read Note 9-Debt for more information.
Critical Accounting Estimates
There have been no material changes to critical accounting estimates disclosed in our Annual Report on Form 10-K.
52
--------------------------------------------------------------------------------Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q may constitute
"forward-looking" statements as defined in Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Private Securities Litigation
Reform Act of 1995 ("PSLRA"), or in releases made by the SEC , all as may be
amended from time to time. Such forward-looking statements involve known and
unknown risks, uncertainties, and other important factors including, without
limitation, our expectations regarding the impact of COVID-19 along with a
number of recent global events including the conflict between Russia and Ukraine
and certain developments in the global crude oil markets on our business, our
customers, and the markets where we operate; our beliefs regarding available
capital resources; our beliefs regarding the likely results or impact of certain
disputes or contingencies and any potential fines or penalties; our beliefs
regarding the fair value of certain assets, and our expectations with respect to
laws and regulations, including environmental regulations and related compliance
costs and any fines or penalties related thereto; our expectations regarding the
sufficiency of our cash flows and liquidity; our expectations regarding
anticipated capital expenditures, including the timing and cost of compliance
with consent decrees and other enforcement actions; our expectations regarding
the impact of the adoption of certain accounting standards; our estimates
regarding the fair value of certain indebtedness; estimated costs to settle
claims from the Delta bankruptcy; the estimated value of, and our ability to
settle, legal claims remaining to be settled against third parties; our
expectations regarding the synergies or other benefits of our acquisitions; our
expectations regarding certain tax liabilities and debt obligations;
management's assumptions about future events; our ability to raise additional
debt or equity capital; our ability to make strategic investments in business
opportunities; and the estimates, assumptions, and projections regarding future
financial condition, results of operations, liquidity, and cash flows. These and
other forward-looking statements could cause the actual results, performance, or
achievements of Par and its subsidiaries to differ materially from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Statements that are not historical fact are
forward-looking statements. Forward-looking statements can be identified by,
among other things, the use of forward-looking language, such as the words
"plan," "believe," "expect," "anticipate," "intend," "estimate," "project,"
"may," "will," "would," "could," "should," "seeks," or "scheduled to," or other
similar words, or the negative of these terms or other variations of these terms
or comparable language, or by discussion of strategy or intentions. These
cautionary statements are being made pursuant to the Securities Act, the
Exchange Act, and the PSLRA with the intention of obtaining the benefits of the
"safe harbor" provisions of such laws.
The forward-looking statements contained in this Quarterly Report on Form 10-Q
are largely based on our expectations, which reflect estimates and assumptions
made by our management. These estimates and assumptions reflect our best
judgment based on currently known market conditions and other factors. Although
we believe such estimates and assumptions to be reasonable, they are inherently
uncertain and involve a number of risks and uncertainties that are beyond our
control, including those set out in our most recent Annual Report on Form 10-K
and this Quarterly Report on Form 10-Q under "Risk Factors."
In addition, management's assumptions about future events may prove to be
inaccurate. All readers are cautioned that the forward-looking statements
contained in this Quarterly Report on Form 10-Q are not guarantees of future
performance; and we cannot assure any reader that such statements will be
realized or that the forward-looking events and circumstances will occur. Actual
results may differ materially from those anticipated or implied in the
forward-looking statements due to factors described above and under Critical
Accounting Estimates and Risk Factors included in our most recent Annual Report
on Form 10-K and in this Quarterly Report on Form 10-Q. All forward-looking
statements speak only as of the date they are made. Additionally, significant
uncertainties remain with respect to COVID-19 and its economic effects. Due to
the unpredictable and unprecedented nature of the COVID-19 pandemic, we cannot
identify all potential risks to, and impacts on, our business, including the
ultimate adverse economic impact to the Company's business, results of
operations, financial condition, and liquidity. There can be no guarantee that
the operational and financial measures the Company has taken, and may take in
the future, will be fully effective. We do not intend to update or revise any
forward-looking statements as a result of new information, future events, or
otherwise. These cautionary statements qualify all forward-looking statements
attributable to us or persons acting on our behalf.
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