Par Petroleum Corporation — Q3 2013 Form 10-Q
Period: Quarter and nine months ended September 30, 2013. The filing identifies the registrant as Par Petroleum Corporation; the request metadata names PAR Pacific Holdings, Inc. The company’s post-bankruptcy “successor” financial statements are not directly comparable with 2012 “predecessor” statements because of fresh-start accounting, asset contributions and acquisitions.
Business context and material developments
Par operated through a 33.34% interest in Piceance Energy, crude-oil logistics and marketing business Texadian, and, from September 25, 2013, Hawaii Independent Energy (HIE). HIE owns a 94,000-barrel-per-day Hawaii refinery, associated logistics assets and 31 retail locations. Its results are included for only the final six days of the quarter.
- Par acquired HIE for $75 million, subject to working-capital and inventory adjustments, plus potential earn-outs of up to $40 million. The preliminary purchase allocation was $559.6 million, largely reflecting net working capital and the acquisition funding structure.
- Par raised approximately $200 million gross by issuing 143.9 million shares at $1.39 per share. Shares issued increased from 150.1 million at December 31, 2012 to 299.1 million at September 30, 2013.
- Barclays supply and exchange arrangements provided approximately $384.9 million toward the HIE acquisition. Par also funded refinery restart expenses and a turbine overhaul; restart expenses were approximately $28 million.
Financial performance and position
| Metric | Q3 2013 / September 30, 2013 | Nine months 2013 |
|---|---|---|
| Total revenue | $35.4 million | $134.9 million |
| Operating loss | $9.3 million | $12.8 million |
| Net loss | $14.6 million; $0.09 per share | $28.7 million; $0.18 per share |
| Operating cash flow | Not separately provided for the quarter | $9.0 million |
| Investing cash flow | Not separately provided for the quarter | $(562.7) million |
| Financing cash flow | Not separately provided for the quarter | $616.5 million |
| Cash and cash equivalents | $69.0 million | At period end |
| Total assets / liabilities | $828.1 million / $552.9 million | At period end |
| Current assets / current liabilities | $567.6 million / $431.4 million | At period end |
| Reported long-term debt, net of discount | $67.4 million | At period end |
Revenue included $26.1 million from refining, $2.5 million from retail, $4.6 million from marketing and transportation, and $2.2 million from natural gas and oil sales in Q3. Nine-month marketing and transportation revenue was $100.4 million, principally from Texadian. The filing does not provide a directly comparable, meaningful prior-year consolidated period or a clear consolidated margin measure.
Reported debt comprised $32.4 million of delayed-draw term loans, $18.8 million of New Tranche B loans and $21.0 million under HIE’s ABL facility, before $4.7 million of unamortized discount. Separately, supply and exchange agreement obligations totaled approximately $350.7 million ($333.6 million current and $17.1 million long term). Nine-month interest and financing costs were $9.8 million; the term-loan rates were scheduled to rise to 14.75% after October 2013 under amendments.
Changes, outlook, risks and unusual items
- Results reflect a major shift from primarily natural gas and oil interests to refining, retail and logistics. HIE contributed only six days of reported operations in Q3; nine-month comparisons are also affected by Texadian’s acquisition and the 2012 bankruptcy reorganization. Prior-period comparisons should therefore be treated cautiously.
- Management identified refinery crack spreads as a key driver of profitability and said future results would depend substantially on refinery performance. No quantified earnings or revenue guidance is provided.
- Par reported a $6.6 million nine-month unrealized loss on derivative liabilities, primarily warrants, and $5.7 million of trust litigation and settlement expense. Q3 general and administrative expense was $10.4 million, including substantial professional fees and acquisition-related costs.
- HIE’s supply arrangements are exclusive to Barclays in most circumstances, secured by liens on substantially all HIE assets, and include minimum-liquidity covenants. HIE’s $125 million ABL facility had $15 million initially drawn; the filing does not state remaining borrowing-base availability.
- Potential HIE earn-outs depend on annual gross margin above $165 million, at 20% of the excess, capped at $20 million per year for 2014–2016. Their initial recorded fair value was $10.5 million.
- A Clean Air Act consent decree concerning Tesoro facilities, including the refinery, was expected to be finalized in Q1 2014. Compliance costs were not estimable; Tesoro agreed to reimburse qualifying pre-closing project capital expenditures and related fines, subject to the agreement’s terms.
- Par recorded no federal income tax benefit and maintained a full valuation allowance against net deferred tax assets; nine-month state tax expense was $650,000. Use of tax attributes remains subject to ownership-change limitations and restrictions on share transfers.
- Disclosure controls were deemed ineffective as of September 30, 2013 because previously identified material weaknesses in internal control over financial reporting remained. Consultants were assisting with close and reporting processes; remediation was still in progress.
Investor verification priorities
- Confirm the registrant and issuer identity: this filing is for Par Petroleum Corporation, notwithstanding the PAR Pacific Holdings, Inc. metadata.
- Track HIE’s post-acquisition operating results, refinery restart and maintenance needs, crack spreads, and actual borrowing-base availability under the ABL facility.
- Review the full economic and collateral terms of the Barclays supply and exchange arrangements, including liquidity covenants, exclusivity, and the approximately $350.7 million recorded obligations.
- Assess the rising term-loan interest burden, repayment premiums, covenant requirements and the effect of the private placement and potential warrant or bankruptcy-claim share issuance on dilution.
- Monitor the final consent decree, Tesoro reimbursement coverage, remaining bankruptcy claims and the resolution of Par’s material control weaknesses.