Par Pacific(PARR) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's interim financial statements, management's discussion and analysis, and disclosures on market risks Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Par Pacific Holdings, Inc. and its subsidiaries for the interim periods ended June 30, 2023 and 2022, including balance sheets, statements of operations, comprehensive income (loss), cash flows, and changes in stockholders' equity, along with detailed notes explaining significant accounting policies, acquisitions, debt, derivatives, and segment information Condensed Consolidated Balance Sheets This statement provides a detailed overview of the company's assets, liabilities, and stockholders' equity at specific reporting dates ASSETS (in thousands) | ASSETS (in thousands) | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $190,951 | $490,925 | | Total current assets | $1,893,351 | $1,881,837 | | Property, plant, and equipment, net | $1,090,259 | $835,834 | | Total assets | $3,609,970 | $3,280,647 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $1,769,953 | $1,794,090 | | Total liabilities | $2,690,659 | $2,636,110 | | Total stockholders' equity | $919,311 | $644,537 | | Total liabilities and stockholders' equity | $3,609,970 | $3,280,647 | - Total assets increased by $329.3 million from December 31, 2022, to June 30, 2023, primarily due to an increase in property, plant, and equipment, net, and inventories, largely influenced by the Billings Acquisition[9] - Cash and cash equivalents decreased significantly by $299.97 million, from $490.925 million at December 31, 2022, to $190.951 million at June 30, 2023[9] Condensed Consolidated Statements of Operations This statement outlines the company's revenues, expenses, and net income (loss) over specific interim periods (in thousands, except per share amounts) | (in thousands, except per share amounts) | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $1,783,927 | $2,106,332 | $3,469,136 | $3,456,625 | | Total operating expenses | $1,737,494 | $1,932,303 | $3,161,301 | $3,403,692 | | Operating income | $46,433 | $174,029 | $307,835 | $52,933 | | Net income | $30,013 | $149,125 | $267,903 | $12,074 | | Basic income per share | $0.50 | $2.51 | $4.45 | $0.20 | | Diluted income per share | $0.49 | $2.50 | $4.39 | $0.20 | - Net income for the three months ended June 30, 2023, decreased significantly to $30.0 million from $149.1 million in the prior year, a 79.8% decrease[11] - For the six months ended June 30, 2023, net income substantially increased to $267.9 million from $12.1 million in the prior year, a 2120% increase[11] Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents the net income or loss and other comprehensive income or loss, reflecting total non-owner changes in equity (in thousands) | (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $30,013 | $149,125 | $267,903 | $12,074 | | Comprehensive income (loss) | $30,002 | $149,125 | $267,881 | $12,074 | - Comprehensive income for the three months ended June 30, 2023, was $30.0 million, a decrease from $149.1 million in the same period last year, primarily reflecting the change in net income[12] - For the six months ended June 30, 2023, comprehensive income was $267.9 million, a significant increase from $12.1 million in the prior year, mirroring the substantial improvement in net income[12] Condensed Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities over specific interim periods (in thousands) | (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $312,240 | $27,657 | | Net cash used in investing activities | $(626,021) | $(28,952) | | Net cash provided by financing activities | $13,812 | $75,252 | | Net increase in cash, cash equivalents, and restricted cash | $(299,969) | $73,957 | | Cash, cash equivalents, and restricted cash at end of period | $194,957 | $190,178 | - Net cash provided by operating activities increased significantly to $312.2 million for the six months ended June 30, 2023, compared to $27.7 million in the prior year, driven by higher net income[15] - Net cash used in investing activities increased substantially to $626.0 million for the six months ended June 30, 2023, primarily due to the $608.2 million Billings Acquisition[15][59] - Net cash provided by financing activities decreased to $13.8 million for the six months ended June 30, 2023, from $75.3 million in the prior year, mainly due to net repayments on inventory financing agreements and debt extinguishment costs, despite net borrowings of debt[15][59] Condensed Consolidated Statements of Changes in Stockholders' Equity This statement tracks the changes in common stock, additional paid-in capital, accumulated earnings, and other comprehensive income over the reporting period (in thousands) | (in thousands) | Balance, December 31, 2022 (in thousands) | Balance, June 30, 2023 (in thousands) | | :------------- | :------------------------- | :--------------------- | | Common Stock | $604 | $610 | | Additional Paid-In Capital | $836,491 | $845,979 | | Accumulated Earnings (Deficit) | $(200,687) | $64,615 | | Accumulated Other Comprehensive Income | $8,129 | $8,107 | | Total Stockholders' Equity | $644,537 | $919,311 | - Total stockholders' equity increased by $274.8 million from December 31, 2022, to June 30, 2023, primarily driven by net income of $237.9 million for the first three months of 2023 and $30.0 million for the second quarter of 2023, and increases in additional paid-in capital[17] - Accumulated earnings shifted from a deficit of $(200.7) million at December 31, 2022, to a positive $64.6 million at June 30, 2023, reflecting strong profitability in the first half of 2023[17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1—Overview Par Pacific Holdings, Inc. operates market-leading energy and infrastructure businesses across three primary segments: Refining (four refineries including a new one in Montana acquired June 1, 2023), Retail (outlets in Hawaii, Washington, and Idaho), and Logistics (extensive multi-modal network, expanded with new assets in the Rockies region from the Billings Acquisition). The company also holds equity investments in Laramie Energy, LLC, Yellowstone Energy Limited Partnership (YELP), and Yellowstone Pipeline Company (YPLC) - Par Pacific Holdings, Inc. operates in three primary business segments: Refining, Retail, and Logistics[20][21][22] - On June 1, 2023, the company acquired a refinery in Billings, Montana, and a 65% interest in an adjacent cogeneration facility (YELP), as well as a 40% interest in Yellowstone Pipeline Company (YPLC), enhancing its integrated downstream network[20][22][23] - As of June 30, 2023, the company held a 46.0% equity investment in Laramie Energy, LLC, focused on natural gas development in Colorado[23] Note 2—Summary of Significant Accounting Policies This note outlines the principles of consolidation, basis of presentation, and use of estimates for the condensed consolidated financial statements, which are prepared in accordance with GAAP for interim financial information. It also details cost classifications, including components of cost of revenues and operating expenses, and confirms no material changes to recent accounting pronouncements from the prior annual report - The condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and include all material adjustments of a normal recurring nature[26] - Cost of revenues (excluding depreciation) includes hydrocarbon-related costs, transportation, crude oil consumed, environmental credit obligations (RINs), and derivative/inventory valuation adjustments[30] - Operating expense (excluding depreciation) covers direct labor, maintenance, utilities, property taxes, environmental compliance, chemicals, and other direct operating expenses[31] Depreciation and Finance Lease Amortization Expense (in thousands) | Line Item | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | $5,022 | $5,175 | $10,021 | $10,227 | | Operating expense | $16,153 | $13,183 | $28,557 | $26,080 | | General and administrative expense | $578 | $771 | $1,080 | $1,419 | Note 3—Refining and Logistics Equity Investments Following the Billings Acquisition on June 1, 2023, Par Pacific acquired a 65% limited partnership interest in Yellowstone Energy Limited Partnership (YELP) and a 40% ownership interest in Yellowstone Pipeline Company (YPLC). Both investments are accounted for using the equity method, reflecting significant influence without control. YPLC contributed $0.4 million in net income for the three and six months ended June 30, 2023, and made a $2.6 million cash dividend - On June 1, 2023, Par acquired a 65% interest in YELP (cogeneration facility) and a 40% interest in YPLC (refined products pipeline) as part of the Billings Acquisition[33][34] - Both YELP and YPLC investments are accounted for using the equity method[33][34] - YPLC contributed $0.4 million in net income for the three and six months ended June 30, 2023, and distributed a $2.6 million cash dividend[34][36] Note 4—Investment in Laramie Energy Par Pacific holds a 46.0% ownership interest in Laramie Energy, LLC. Following a new term loan agreement on February 21, 2023, Laramie Energy was able to make cash distributions, resulting in a $10.7 million distribution to Par Pacific on March 1, 2023, recorded as equity earnings. Equity method accounting resumed for Laramie Energy effective February 21, 2023 - Par Pacific holds a 46.0% ownership interest in Laramie Energy, LLC[37] - Laramie Energy entered a new $205 million term loan agreement on February 21, 2023, allowing for cash distributions to owners[39] - Par Pacific received a $10.7 million cash distribution from Laramie Energy on March 1, 2023, recorded as Equity earnings from Laramie Energy, LLC[40] - Equity method accounting for Laramie Energy resumed effective February 21, 2023[41] Note 5—Acquisitions On June 1, 2023, Par Pacific completed the Billings Acquisition for approximately $638.2 million, acquiring a high-conversion refinery in Billings, Montana, and associated distribution and logistics assets, including equity interests in YELP and YPLC. The acquisition was funded by cash on hand and ABL Credit Facility borrowings. Preliminary fair value allocation of assets acquired and liabilities assumed totaled $625.5 million, with finalization expected in early 2024. The acquired assets contributed $217.2 million in revenues and a net loss of $15.6 million for June 2023 - The Billings Acquisition was completed on June 1, 2023, for approximately $638.2 million, acquiring a refinery and logistics assets in Montana[42][43] Preliminary Fair Value of Assets Acquired and Liabilities Assumed (in thousands) | Item | Fair Value (in thousands) | | :-------------------------------- | :--------- | | Trade accounts receivable | $2,395 | | Inventories | $299,228 | | Property, plant, and equipment | $259,088 | | Investment in refining and logistics subsidiaries | $86,600 | | Total assets | $654,967 | | Total liabilities | $29,487 | | Total | $625,480 | - Acquisition and integration costs of $7.3 million for the three months and $12.5 million for the six months ended June 30, 2023, were incurred[47] - The acquired assets contributed $217.2 million in revenues and a net loss of $15.6 million for the month of June 2023[49] Note 6—Revenue Recognition This note details the company's revenue recognition policies, including disaggregated revenue by major product line and segment. Receivables from contracts with customers increased to $367.7 million at June 30, 2023, from $242.5 million at December 31, 2022. Deferred revenue also increased to $14.2 million from $11.5 million over the same period - Receivables from contracts with customers increased to $367.7 million at June 30, 2023, from $242.5 million at December 31, 2022[51] - Deferred revenue increased to $14.2 million at June 30, 2023, from $11.5 million at December 31, 2022[51] Disaggregated Revenue by Major Product Line (in thousands) | Product or service | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Refining: | | | | | | Gasoline | $603,598 | $614,942 | $1,053,922 | $1,016,051 | | Distillates | $700,048 | $896,601 | $1,479,101 | $1,484,684 | | Other refined products | $404,619 | $526,854 | $790,228 | $830,461 | | Total segment revenues | $1,708,541 | $2,044,455 | $3,323,953 | $3,343,678 | | Logistics: | | | | | | Transportation and terminalling services | $64,709 | $50,633 | $117,097 | $93,094 | | Total segment revenues | $64,709 | $50,633 | $117,097 | $93,094 | | Retail: | | | | | | Gasoline | $109,265 | $112,231 | $209,453 | $202,006 | | Merchandise | $25,892 | $22,907 | $48,720 | $43,722 | | Total segment revenues | $148,396 | $147,211 | $283,968 | $267,120 | Note 7—Inventories Inventories increased to $1,241.5 million at June 30, 2023, from $1,042.0 million at December 31, 2022, primarily driven by increases in crude oil and feedstocks, refined products, and warehouse stock. This includes a significant portion of RINs and environmental credits, valued at $293.3 million at June 30, 2023. No reserve for lower of cost or net realizable value was recorded Inventories (in thousands) | Item | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :------------ | :---------------- | | Crude oil and feedstocks | $368,957 | $377,618 | | Refined products and blendstock | $495,606 | $356,664 | | Warehouse stock and other | $376,931 | $307,701 | | Total | $1,241,494 | $1,041,983 | - Inventories increased by $199.5 million from December 31, 2022, to June 30, 2023[56] - RINs and environmental credits included in warehouse stock and other inventories were $293.3 million at June 30, 2023, and $258.2 million at December 31, 2022[57] Note 8—Prepaid and Other Current Assets Prepaid and other current assets decreased to $54.8 million at June 30, 2023, from $92.0 million at December 31, 2022. This reduction was primarily due to the utilization of the $30.0 million Billings Acquisition deposit and a decrease in collateral posted with brokers for derivative instruments Prepaid and Other Current Assets (in thousands) | Item | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------------ | :------------ | :---------------- | | Collateral posted with broker for derivative instruments | $29,973 | $40,788 | | Billings Acquisition deposit | $— | $30,000 | | Prepaid insurance | $7,718 | $15,639 | | Other | $17,123 | $5,616 | | Total | $54,814 | $92,043 | - The Billings Acquisition deposit of $30.0 million was utilized by June 30, 2023[61] - Collateral posted with brokers for derivative instruments decreased by $10.8 million[61] Note 9—Inventory Financing Agreements Obligations under inventory financing agreements decreased to $783.6 million at June 30, 2023, from $893.1 million at December 31, 2022. This includes the Supply and Offtake Agreement with J. Aron and the Washington Refinery Intermediation Agreement with MLC. Several amendments were made to these agreements in 2023, including establishing SOFR as the benchmark rate and adjusting borrowing capacities. Inventory intermediation fees and interest expenses are detailed Outstanding Obligations Under Inventory Financing Agreements (in thousands) | Agreement | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------ | :---------------- | | Supply and Offtake Agreement | $568,670 | $732,511 | | Washington Refinery Intermediation Agreement | $214,952 | $160,554 | | Total | $783,622 | $893,065 | - Total obligations under inventory financing agreements decreased by $109.4 million[63] - The Supply and Offtake Agreement was amended to establish SOFR as the benchmark rate, effective July 1, 2023[65] Inventory Intermediation Fees and Interest Expense (in thousands) | Item | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Supply and Offtake Agreement - Inventory intermediation fees | $12,628 | $28,522 | $26,627 | $39,445 | | Supply and Offtake Agreement - Interest expense and financing costs, net | $1,895 | $1,858 | $3,620 | $3,102 | | Washington Refinery Intermediation Agreement - Inventory intermediation fees | $750 | $750 | $1,500 | $1,500 | | Washington Refinery Intermediation Agreement - Interest expense and financing costs, net | $3,313 | $2,943 | $5,972 | $4,897 | Note 10—Other Accrued Liabilities Other accrued liabilities decreased to $513.1 million at June 30, 2023, from $640.5 million at December 31, 2022. This reduction was primarily driven by a decrease in gross environmental credit obligations, which are stated at market value and partially offset by RINs assets Other Accrued Liabilities (in thousands) | Item | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------ | :---------------- | | Accrued payroll and other employee benefits | $22,617 | $27,815 | | Gross environmental credit obligations | $433,031 | $549,791 | | Other | $57,483 | $62,888 | | Total | $513,131 | $640,494 | - Gross environmental credit obligations decreased by $116.8 million, from $549.8 million to $433.0 million[74] - Net environmental credit obligations (if marked to fair market value) would have been $100.9 million at June 30, 2023, down from $152.6 million at December 31, 2022[74] Note 11—Debt Total debt, net of unamortized discount and deferred financing costs, increased to $579.1 million at June 30, 2023, from $505.5 million at December 31, 2022. This change reflects a significant refinancing in Q1 2023, including the termination of the Prior ABL Credit Facility, 7.75% Senior Secured Notes, Term Loan B Facility, and 12.875% Senior Secured Notes. New debt includes a $450 million ABL Credit Facility due 2028 and a $550 million Term Loan Credit Agreement due 2030, extending debt maturity and altering interest rate structures. The company was in compliance with all debt instruments as of June 30, 2023 Outstanding Debt (in thousands) | Item | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------------ | :------------ | :---------------- | | ABL Credit Facility due 2028 | $41,000 | $— | | Term Loan Credit Agreement due 2030 | $548,625 | $— | | 7.75% Senior Secured Notes due 2025 | $— | $281,000 | | Term Loan B Facility due 2026 | $— | $203,125 | | 12.875% Senior Secured Notes due 2026 | $— | $31,314 | | Total debt, net of unamortized discount and deferred financing costs | $579,115 | $505,532 | - The company repaid and terminated the Prior ABL Credit Facility, 7.75% Senior Secured Notes, Term Loan B Facility, and 12.875% Senior Secured Notes in Q1 2023[77][87][88][89] - A new ABL Credit Facility was established with an initial aggregate principal amount of up to $150 million, later increased to $450 million, maturing April 26, 2028[77][80] - A Term Loan Credit Agreement of $550.0 million was entered into, maturing on February 28, 2030, bearing interest at SOFR plus an applicable margin[83][84][86] Note 12—Derivatives Par Pacific uses commodity derivatives (futures, OTC swaps, option collars) to manage price exposure on inventory, crude oil purchases, and refined product sales, with open contracts settling by December 2024. An interest rate collar transaction was entered into on April 12, 2023, to manage interest rate risk on the Term Loan Credit Agreement, with a notional amount of $300.0 million and an interest rate cap of 5.50% and floor of 2.295% based on three-month SOFR, expiring May 31, 2026 Open Commodity Derivative Contracts (in thousands of barrels) at June 30, 2023 | Contract Type | Purchases (in thousands of barrels) | Sales (in thousands of barrels) | Net (in thousands of barrels) | | :------------ | :-------- | :---- | :---- | | Futures | 45,493 | (45,912) | (419) | | Swaps | 6,548 | (10,294) | (3,746) | | Total | 52,041 | (56,206) | (4,165) | - An interest rate collar transaction was initiated on April 12, 2023, for a notional amount of $300.0 million to manage interest rate risk on the Term Loan Credit Agreement, with a cap of 5.50% and floor of 2.295%, expiring May 31, 2026[96] Pre-tax Gains (Losses) on Derivative Instruments (in thousands) | Statement of Operations Location | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues (excluding depreciation) - Commodity derivatives | $(6,104) | $(39,024) | $(6,728) | $(57,478) | | Cost of revenues (excluding depreciation) - J. Aron repurchase obligation derivative | $(7,852) | $13,229 | $5,528 | $(30,040) | | Cost of revenues (excluding depreciation) - MLC terminal obligation derivative | $20,490 | $(25,796) | $3,467 | $(90,192) | | Interest expense and financing costs, net - Interest rate derivatives | $543 | $— | $543 | $— | Note 13—Fair Value Measurements This note details the fair value measurements for assets and liabilities, both on a nonrecurring basis (Billings Acquisition purchase price allocation) and a recurring basis (derivative instruments and gross environmental credit obligations). The Billings Acquisition assets and liabilities were preliminarily valued at $625.5 million. Derivative instruments are classified across Level 1, 2, and 3, with Level 3 including embedded derivatives related to inventory financing agreements due to unobservable contractual price differentials. Gross environmental credit obligations are Level 2, based on market quotes Preliminary Fair Value of Billings Acquisition Assets and Liabilities (in thousands) | Item | Fair Value (in thousands) | | :-------------------------------- | :--------- | | Net working capital excluding operating leases | $294,567 | | Property, plant, and equipment | $259,088 | | Refining and logistics equity investments | $86,600 | | Environmental liabilities | $(18,869) | | Total | $625,480 | - Derivative instruments are classified into Level 1 (exchange-traded futures), Level 2 (OTC swaps and options), and Level 3 (embedded derivatives in inventory financing agreements due to unobservable contractual price differentials)[106] - Gross environmental credit obligations are classified as Level 2 instruments, with pricing inputs obtained from brokers based on market quotes[107] Fair Value Amounts by Hierarchy Level (in thousands) at June 30, 2023 | Item | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Gross Fair Value (in thousands) | Net Carrying Value (in thousands) | | :-------------------------------- | :------ | :------ | :------ | :--------------- | :----------------- | | Assets: | | | | | | | Commodity derivatives | $167,336 | $11,944 | $— | $179,280 | $— | | Interest rate derivatives | $— | $543 | $— | $543 | $543 | | Liabilities: | | | | | | | Commodity derivatives | $(178,093) | $(20,045) | $— | $(198,138) | $(18,858) | | J. Aron repurchase obligation derivative | $— | $— | $(6,628) | $(6,628) | $(6,628) | | MLC terminal obligation derivative | $— | $— | $1,044 | $1,044 | $1,044 | | Gross environmental credit obligations | $— | $(433,031) | $— | $(433,031) | $(433,031) | Note 14—Leases Par Pacific has finance and operating lease liabilities for various assets, with total lease liabilities at $348.2 million at June 30, 2023. The weighted-average remaining lease term for operating leases is 8.96 years with a discount rate of 7.06%. Total net lease cost for the six months ended June 30, 2023, was $59.6 million, with operating lease costs being the largest component Right-of-Use Assets and Liabilities (in thousands) | Lease type | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------ | :---------------- | | Total right-of-use assets | $341,708 | $361,603 | | Total lease liabilities | $348,185 | $366,875 | Weighted-Average Lease Terms and Discount Rates | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Weighted-average remaining lease term (in years) - Operating | 8.96 | 9.00 | | Weighted-average discount rate - Operating | 7.06 % | 7.10 % | Lease Costs and Income (in thousands) | Lease cost (income) type | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :----------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $48,290 | $44,247 | | Net lease cost | $59,587 | $50,620 | | Operating lease income | $(7,275) | $(4,065) | Note 15—Commitments and Contingencies Par Pacific is involved in various legal proceedings, tax audits, and environmental matters, including liabilities assumed from the Billings Acquisition. Significant environmental matters include ongoing remediation at the Wyoming refinery (accrued $14.5 million) and compliance with Washington's Climate Commitment Act and Clean Fuel Standard, which could materially impact financial results. The company also has unresolved claims from the Delta Petroleum Corporation reorganization, with $22.4 million in related claims remaining, for which $0.5 million has been accrued - The company assumed certain environmental liabilities associated with the Billings Acquisition[123] - Accrued $14.5 million for investigation, monitoring, and remediation costs at the Wyoming refinery, with costs expected over 30 years[129] - Compliance with Washington's Climate Commitment Act and Clean Fuel Standard, effective in 2023, may require purchasing compliance credits, potentially having a material financial impact[132] - Settled a portion of 2020 and all 2021 RVO liabilities, resulting in a $94.7 million gain included in Cost of revenues (excluding depreciation)[135] - Two related claims totaling approximately $22.4 million remain from the Delta Petroleum Corporation reorganization, with $0.5 million accrued[139] Note 16—Stockholders' Equity Par Pacific's Board authorized a share repurchase program, initially for up to $50 million, which was expanded to $250 million on August 2, 2023. During the three and six months ended June 30, 2023, 110 thousand shares were repurchased for $2.6 million. The company also details compensation costs for restricted stock awards, restricted stock units, and stock option awards under its long-term incentive plan - The Board authorized a share repurchase program for up to $50 million on November 10, 2021, and expanded it to $250 million on August 2, 2023[142] - During the three and six months ended June 30, 2023, 110 thousand shares were repurchased for $2.6 million[142] - As of June 30, 2023, $43.3 million of authorization remained under the share repurchase program[142] Compensation Costs (in thousands) | Item | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Restricted Stock Awards | $2,656 | $1,153 | $4,052 | $2,902 | | Restricted Stock Units | $477 | $338 | $984 | $1,011 | | Stock Option Awards | $523 | $525 | $937 | $1,761 | Note 17—Income (Loss) per Share This note provides the computation of basic and diluted income per share. For the three months ended June 30, 2023, basic EPS was $0.50 and diluted EPS was $0.49, a significant decrease from the prior year. For the six months ended June 30, 2023, basic EPS was $4.45 and diluted EPS was $4.39, a substantial increase from the prior year Income Per Share (in thousands, except per share amounts) | Item | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $30,013 | $149,125 | $267,903 | $12,074 | | Basic weighted-average common stock shares outstanding | 60,399 | 59,479 | 60,255 | 59,449 | | Diluted weighted-average common stock shares outstanding | 60,993 | 59,642 | 61,020 | 59,644 | | Basic income per common share | $0.50 | $2.51 | $4.45 | $0.20 | | Diluted income per common share | $0.49 | $2.50 | $4.39 | $0.20 | - Diluted EPS decreased from $2.50 to $0.49 for the three months ended June 30, 2023, compared to the prior year[147] - Diluted EPS increased from $0.20 to $4.39 for the six months ended June 30, 2023, compared to the prior year[147] Note 18—Income Taxes Par Pacific maintains a valuation allowance against substantially all of its net deferred tax assets, including approximately $1.2 billion in net operating loss (NOL) carryforwards as of December 31, 2022, as management does not consider their realization more likely than not. The company expects to incur state tax liabilities due to differing apportionment rules for NOLs and revenue-generating states - A valuation allowance is recorded for substantially all net deferred tax assets, as realization is not considered more likely than not[149] - As of December 31, 2022, the company had approximately $1.2 billion in net operating loss carryforwards[150] - The company expects to incur state tax liabilities because NOL carryforwards may not be available to offset taxable income apportioned to various states[151] Note 19—Segment Information Par Pacific reports results for four segments: Refining, Retail, Logistics, and Corporate and Other. The Billings Acquisition results are included in the refining and logistics segments starting June 1, 2023. For the six months ended June 30, 2023, Refining operating income significantly increased to $307.3 million, Logistics operating income increased to $33.3 million, and Retail operating income increased to $28.7 million, compared to the prior year - The company operates in four reportable segments: Refining, Retail, Logistics, and Corporate and Other[152] - Results of the Billings Acquisition are included in the refining and logistics segments starting June 1, 2023[152] Operating Income (Loss) by Segment (in thousands) | Segment | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Refining | $44,139 | $168,798 | $307,276 | $50,473 | | Logistics | $20,691 | $15,898 | $33,299 | $25,750 | | Retail | $15,220 | $5,525 | $28,694 | $9,570 | | Corporate, Eliminations and Other | $(33,617) | $(16,192) | $(61,434) | $(32,860) | | Total Operating Income (Loss) | $46,433 | $174,029 | $307,835 | $52,933 | Note 20—Subsequent Events Subsequent to June 30, 2023, Par Hawaii Refining, LLC (PHR) entered into an Uncommitted Credit Agreement (LC Facility Agreement) on July 26, 2023, providing up to $120 million (with an option to increase to $350 million) for crude oil procurement and credit support. Concurrently, an amendment to the Supply and Offtake Agreement was made to allow PHR to use letters of credit for crude oil purchases and to establish a minimum liquidity covenant of $15 million for PHR - On July 26, 2023, PHR entered into an Uncommitted Credit Agreement (LC Facility Agreement) for up to $120 million (expandable to $350 million) for crude oil procurement and credit support[158] - An amendment to the Supply and Offtake Agreement was made to facilitate the LC Facility and impose a minimum liquidity covenant of $15 million for PHR[159] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers, recent events, and segment-specific contributions. It also includes reconciliations of non-GAAP financial measures like Adjusted EBITDA and Adjusted Net Income, and discusses liquidity, capital resources, and critical accounting estimates Overview Par Pacific Holdings, Inc. is a growing energy company focused on renewable and conventional fuels in the western U.S., operating through three primary segments: Refining (four refineries, including the newly acquired Billings refinery), Retail (outlets in Hawaii, Washington, and Idaho), and Logistics (extensive network, expanded with Billings assets). The company also holds equity investments in Laramie Energy, YELP, and YPLC - Par Pacific operates in Refining, Retail, and Logistics segments, with the Billings Acquisition expanding its refining and logistics footprint in the upper Rockies and Pacific Northwest[160][161][162] - The company's total operating throughput capacity for refineries is 218 thousand barrels per day (Mbpd)[160] - Equity investments include a 46.0% stake in Laramie Energy, 65% in YELP, and 40% in YPLC[163] Recent Events Affecting Comparability of Periods Crude oil prices decreased in the first half of 2023 compared to late 2022, with Brent crude averaging $80 per barrel. However, OPEC+ production cuts, particularly from Saudi Arabia, are expected to put upward pressure on crude oil prices, bringing them closer to 2022 levels by year-end. Refined product crack spreads also decreased in Q2 2023 compared to Q2 2022 - Brent crude oil pricing decreased to $80 per barrel in H1 2023 from $107 per barrel in H2 2022[165] - U.S. retail gasoline prices decreased to $3.59 per gallon in H1 2023 from $4.17 per gallon in H2 2022[165] - Refined product crack spreads in Q2 2023 decreased compared to Q2 2022[165] - OPEC+ production cuts (1.2 MMbpd announced April 3, 2023, plus an additional 1 MMbpd from Saudi Arabia starting July 2023) are expected to increase crude oil prices[165] Results of Operations Net income for Q2 2023 declined to $30.0 million from $149.1 million in Q2 2022, primarily due to a $124.7 million decrease in refining segment operating income. However, for the six months ended June 30, 2023, net income significantly improved to $267.9 million from $12.1 million in the prior year, driven by a $256.8 million increase in refining operating income and a $19.1 million increase in retail operating income. Adjusted EBITDA for the six-month period also increased to $318.5 million from $254.5 million Consolidated Results of Operations (in thousands) | Item | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $1,783,927 | $2,106,332 | $3,469,136 | $3,456,625 | | Operating income | $46,433 | $174,029 | $307,835 | $52,933 | | Net income | $30,013 | $149,125 | $267,903 | $12,074 | - Q2 2023 net income decreased by $119.1 million (79.8%) YoY, primarily due to a $124.7 million decrease in refining operating income[167] - H1 2023 net income increased by $255.8 million (2120%) YoY, driven by a $256.8 million increase in refining operating income and $19.1 million in retail operating income[170] Adjusted EBITDA (in thousands) | Period | Adjusted EBITDA (in thousands) | | :------------------------------- | :-------------- | | Three Months Ended June 30, 2023 | $150,830 | | Three Months Ended June 30, 2022 | $242,093 | | Six Months Ended June 30, 2023 | $318,465 | | Six Months Ended June 30, 2022 | $254,477 | Key Operating Statistics for Refining Segment | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Feedstocks Throughput (Mbpd) | 162.3 | 141.3 | 147.7 | 129.8 | | Total Refined product sales volume (Mbpd) | 168.8 | 143.4 | 159.1 | 133.0 | | Hawaii Refinery Adjusted Gross Margin per bbl ($/throughput bbl) | $12.08 | $18.71 | $15.41 | $11.22 | | Washington Refinery Adjusted Gross Margin per bbl ($/throughput bbl) | $6.37 | $20.50 | $8.66 | $14.17 | | Wyoming Refinery Adjusted Gross Margin per bbl ($/throughput bbl) | $20.56 | $43.34 | $24.05 | $34.97 | | Montana Refinery Feedstocks Throughput (Mbpd) | 62.6 | — | 62.6 | — | | Montana Refinery Adjusted Gross Margin per bbl ($/throughput bbl) | $30.98 | — | $30.98 | — | Key Operating Statistics for Retail Segment | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Retail sales volumes (thousands of gallons) | 29,373 | 25,862 | 56,572 | 50,770 | Non-GAAP Performance Measures Management uses non-GAAP measures like Adjusted Gross Margin, Adjusted Net Income (Loss), and Adjusted EBITDA to evaluate operating performance, excluding volatile commodity prices, non-cash items, and certain timing differences. These measures were modified in fiscal year 2023 to exclude mark-to-market losses/gains from environmental obligations and redevelopment costs for the Par West facility, and Par's portion of interest, taxes, and depreciation from refining and logistics investments, to improve comparability and reflect core operating performance - Adjusted Gross Margin, Adjusted Net Income (Loss), and Adjusted EBITDA are non-GAAP measures used to assess financial performance, excluding volatile commodity prices and certain non-cash/timing differences[186] - Beginning in fiscal year 2023, these non-GAAP measures exclude mark-to-market losses/gains from Washington Climate Commitment Act and Clean Fuel Standard obligations, and redevelopment costs for the Par West facility[187][188] - Also excluded is Par's portion of interest, taxes, and depreciation expense from refining and logistics investments, starting Q2 2023[189] Adjusted Gross Margin Reconciliation (in thousands) | Segment | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Refining | $205,575 | $287,262 | $417,204 | $349,977 | | Logistics | $29,553 | $24,894 | $50,642 | $43,606 | | Retail | $39,228 | $27,569 | $76,572 | $53,636 | Adjusted Net Income and Adjusted EBITDA Reconciliation (in thousands) | Item | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $30,013 | $149,125 | $267,903 | $12,074 | | Adjusted Net Income | $105,570 | $197,231 | $243,088 | $169,878 | | Adjusted EBITDA | $150,830 | $242,093 | $318,465 | $254,477 | Factors Impacting Segment Results Refining operating income decreased by $124.7 million in Q2 2023 YoY due to lower crack spreads and unfavorable crude oil differentials, despite a $58.2 million contribution from the Montana refinery. However, for H1 2023, refining operating income improved by $256.8 million YoY, driven by a $216.7 million decrease in environmental costs, including a $94.7 million gain on RINs retirement. Logistics operating income increased in both periods due to contributions from Billings assets and increased third-party revenues. Retail operating income and Adjusted Gross Margin improved significantly in both periods due to higher fuel margins, sales volumes, and merchandise sales - Refining operating income decreased by $124.7 million in Q2 2023 YoY, primarily due to decreased crack spreads and unfavorable crude oil differentials[196][197] - Refining operating income improved by $256.8 million in H1 2023 YoY, mainly due to a $216.7 million decrease in consolidated environmental costs, including a $94.7 million gain on RINs retirement[200] - Logistics operating income increased by $4.8 million in Q2 2023 and $7.5 million in H1 2023, driven by Billings logistics assets and increased third-party revenues[198][201] - Retail operating income increased by $9.7 million in Q2 2023 and $19.1 million in H1 2023, attributed to higher fuel margins, sales volumes, and merchandise sales[199][202] - Refining Adjusted Gross Margin decreased by $81.7 million in Q2 2023 YoY but increased by $67.2 million in H1 2023 YoY, with the Montana refinery contributing $58.2 million in both periods[203][208] Discussion of Consolidated Results Consolidated revenues for Q2 2023 decreased by $0.3 billion YoY to $1.8 billion, primarily due to lower crude prices and crack spreads, partially offset by the Billings Acquisition. For H1 2023, revenues were consistent YoY at $3.5 billion, with Billings Acquisition contributions offsetting lower crude prices in legacy operations. Cost of revenues decreased in both periods due to lower crude prices and intermediation/environmental costs. Operating expenses increased due to the Billings Acquisition and higher employee/utility costs. Interest expense decreased due to higher interest income, despite increased debt balances. Debt extinguishment costs were significant in H1 2023 due to refinancing activities - Q2 2023 revenues decreased by $0.3 billion YoY to $1.8 billion, driven by lower crude prices and crack spreads, partially offset by $0.2 billion from the Billings Acquisition[211] - H1 2023 revenues were consistent YoY at $3.5 billion, with the Billings Acquisition contributing $0.2 billion, offsetting lower crude oil prices in legacy refining operations[222] - Cost of revenues (excluding depreciation) decreased by $0.2 billion in Q2 2023 and $0.3 billion in H1 2023, primarily due to lower crude oil prices and reduced intermediation/environmental costs[212][223] - Operating expense (excluding depreciation) increased by $20.9 million in Q2 2023 and $24.1 million in H1 2023, largely due to the Billings Acquisition ($15.3 million) and higher employee/utility costs[213][224] - Debt extinguishment and commitment costs were immaterial in Q2 2023 but $17.7 million in H1 2023 due to long-term debt refinancing[220][231] - Equity earnings from Laramie Energy, LLC were $10.7 million in H1 2023, resulting from a one-time cash distribution after debt refinancing[232] Consolidating Condensed Financial Information This section provides supplemental condensed consolidating financial information for the Parent Guarantor, Issuer and Subsidiaries, and Non-Guarantor Subsidiaries and Eliminations. It reflects the impact of the Term Loan Credit Agreement, which refinanced existing debt and is guaranteed by the Parent and its subsidiaries. The financial data illustrates the separate accounts and consolidating adjustments for each entity - The Term Loan Credit Agreement, co-issued by Par Petroleum, LLC and Par Petroleum Finance Corp., is guaranteed by Par Pacific Holdings, Inc. (Parent) and all subsidiaries of Par Petroleum, LLC[235] - The supplemental information segregates financial data for the Parent Guarantor, Issuer and Subsidiaries (all guarantors), and Non-Guarantor Subsidiaries and Eliminations[236] Consolidating Condensed Balance Sheet (in thousands) as of June 30, 2023 | Item | Parent Guarantor (in thousands) | Issuer and Subsidiaries (in thousands) | Non Guarantor Subsidiaries and Eliminations (in thousands) | Par Pacific Holdings, Inc. and Subsidiaries (in thousands) | | :-------------------------------- | :--------------- | :---------------------- | :------------------------------------------ | :------------------------------------------ | | Total assets | $1,031,511 | $3,503,296 | $(924,837) | $3,609,970 | | Total liabilities | $112,200 | $2,871,615 | $(293,156) | $2,690,659 | | Total stockholders' equity | $919,311 | $631,681 | $(631,681) | $919,311 | Consolidating Condensed Statement of Operations (in thousands) for Six Months Ended June 30, 2023 | Item | Parent Guarantor (in thousands) | Issuer and Subsidiaries (in thousands) | Non-Guarantor Subsidiaries and Eliminations (in thousands) | Par Pacific Holdings, Inc. and Subsidiaries (in thousands) | | :-------------------------------- | :--------------- | :---------------------- | :------------------------------------------ | :------------------------------------------ | | Revenues | $— | $3,469,072 | $64 | $3,469,136 | | Operating income (loss) | $(15,125) | $322,564 | $396 | $307,835 | | Net income (loss) | $267,903 | $206,517 | $(206,517) | $267,903 | Non-GAAP Financial Measures (for Consolidating Condensed Financial Information) This section provides a reconciliation of Adjusted EBITDA for the supplemental consolidating condensed financial information, broken down by Parent Guarantor, Issuer and Subsidiaries, and Non-Guarantor Subsidiaries and Eliminations. The calculation method for Adjusted EBITDA remains consistent with the consolidated non-GAAP measures, allowing for a segmented view of performance - Adjusted EBITDA for the supplemental consolidating condensed financial information is calculated consistently with the consolidated Adjusted EBITDA[245] Adjusted EBITDA Reconciliation for Consolidating Information (in thousands) for Six Months Ended June 30, 2023 | Item | Parent Guarantor (in thousands) | Issuer and Subsidiaries (in thousands) | Non-Guarantor Subsidiaries and Eliminations (in thousands) | Par Pacific Holdings, Inc. and Subsidiaries (in thousands) | | :-------------------------------- | :--------------- | :---------------------- | :------------------------------------------ | :------------------------------------------ | | Net income (loss) | $267,903 | $206,517 | $(206,517) | $267,903 | | Adjusted EBITDA | $(13,799) | $331,567 | $697 | $318,465 | Liquidity and Capital Resources Par Pacific's liquidity and capital requirements are driven by debt maturities, capital expenditures, and working capital needs. As of June 30, 2023, total liquidity was $464.4 million, supported by cash on hand ($191.0 million) and available credit facilities (ABL Credit Facility, J. Aron Discretionary Draw Facility, MLC receivable advances). The company believes current resources are sufficient for the next 12 months, but may seek additional capital for acquisitions