Par Pacific Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 3, 2022. Par operates refining, retail and logistics businesses, with refineries in Hawaii, Wyoming and Washington. All dollar amounts below are in millions unless noted.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2,056.3 | $1,310.4 | $5,512.9 | $3,416.6 |
| Operating income (loss) | $284.2 | $97.8 | $337.1 | $(31.4) |
| Net income (loss) | $267.4 | $81.8 | $279.5 | $(89.4) |
| Diluted earnings (loss) per share | $4.47 | $1.37 | $4.68 | $(1.55) |
| Adjusted EBITDA (non-GAAP) | $214.1 | $58.2 | $468.5 | $98.6 |
Revenue rose 57% in Q3 and 61% year to date, primarily reflecting higher crude and refined-product prices and stronger crack spreads. Approximate GAAP operating margin was 13.8% in Q3 2022 versus 7.5% in Q3 2021; year-to-date operating margin was 6.1% versus negative 0.9%. Net margin was approximately 13.0% and 6.2% for the respective quarters, and 5.1% year to date in 2022 versus a loss in 2021.
- Cash flow: Nine-month operating cash flow was $369.1, compared with $54.6 in 2021. Investing used $37.7, versus $82.4 provided in 2021, which included sale-leaseback proceeds. Financing used $34.5, including net debt repayments and share repurchases. Cash, cash equivalents and restricted cash were $413.1 at September 30, 2022.
- Liquidity: Management reported liquidity of $494.7, including $409.1 of cash and access to credit and inventory-financing arrangements. It said cash flows and available resources should cover capital expenditures, working capital and debt service for the next 12 months.
- Debt and financing: Debt principal was $518.6 ($507.8 net of discounts and financing costs), down from $579.9 principal at year-end 2021. Cash exceeded net reported debt by approximately $98.7, before inventory-financing obligations. Outstanding inventory-financing obligations were $864.1, up from $737.7; these are separate from the debt table. The ABL revolver had no borrowings and a $116.4 borrowing base, with $30.9 of letters of credit outstanding. Par reported compliance with its debt instruments.
- Balance sheet: Current assets were $1,738.6 and current liabilities $1,721.7. Total assets were $3,107.1; stockholders’ equity was $546.9, compared with $265.7 at December 31, 2021.
Material changes and business drivers
- Q3 and year-to-date earnings improved substantially, driven mainly by higher product crack spreads across the refineries and favorable changes in embedded derivatives tied to inventory-financing agreements. Results were partly offset by crude and purchased-product differentials, higher fuel costs and intermediation fees, and increased RIN expenses.
- Q3 refining operating income was $266.1, versus $86.4; logistics was $17.6, versus $13.4; and retail was $17.3, versus $11.2. For the first nine months, refining earned $316.6 versus a $103.6 loss, logistics earned $43.4 versus $38.0, and retail earned $26.9 versus $73.2.
- Q3 refining Adjusted Gross Margin was $250.8 versus $93.5; retail was $41.8 versus $32.5; and logistics was $26.2 versus $22.7. These are company-defined non-GAAP measures and should not be treated as substitutes for GAAP results.
- Year-to-date results include no repeat of the 2021 Hawaii sale-leaseback gain of approximately $63.9. Operating expenses rose 14% year over year; G&A rose 30%.
- Refining throughput was 138.5 thousand barrels per day in Q3 versus 137.3; refined-product sales volume was 149.3 versus 144.9. Retail sales volume declined to 27.8 million gallons from 28.7 million.
Outlook, risks and contingencies
- Guidance: The filing does not provide numerical earnings or operating guidance. Management cited strong but volatile commodity markets and uncertainty around demand, prices and liquidity.
- Billings acquisition: On October 20, 2022, Par agreed to acquire ExxonMobil’s Billings refinery and associated distribution and logistics assets, plus interests in two related companies, for a base price of $310 plus hydrocarbon inventory and adjusted working capital. Closing was expected in Q2 2023, subject to conditions. The filing cautions that closing, integration and anticipated benefits are uncertain.
- Market exposure: Earnings, cash flow and liquidity are sensitive to refining margins and commodity prices. Management estimated that a $1-per-barrel change in average gross refining margins, with Q3 throughput held constant, would change annualized operating income by about $49.9. A 1% increase in variable borrowing rates was estimated to add about $6.4 annually to cost of revenues and $4.1 to interest expense.
- Environmental and regulatory exposure: RFS/RIN requirements and volatile credit prices are material risks; gross environmental-credit obligations were $489.6 at quarter-end, with $194.0 of related credits recorded in inventory at carrying cost. Wyoming refinery remediation accruals were $15.0; estimated wastewater-treatment-system costs were approximately $11.6, with timing and final costs uncertain. The EPA denied Par’s pending 2019–2020 small-refinery exemption applications in June 2022.
- Legal and tax matters: Par is appealing a $1.4 Washington tax assessment and disputes a Hawaii free-trade-zone tax complaint and related audits; management said unfavorable outcomes were neither probable nor reasonably estimable. Two legacy Delta claims total approximately $22.4, while the recorded accrual was approximately $0.5; the ultimate settlement remains uncertain.
- Management noted ongoing effects and uncertainty from COVID-19, the Russia-Ukraine conflict, inflation, interest-rate increases and crude-market developments. Par suspended Russian crude purchases for its Hawaii refinery in March 2022. It also reported that federal and state environmental rules may increase costs or constrain operations.
Important facts for investors to verify
- Whether refining margins and earnings remain resilient as commodity prices, crack spreads and crude differentials change.
- Cash conversion and working-capital requirements, including inventory, receivables, supplier advances, RIN obligations and inventory-financing balances.
- Debt repayment capacity, interest-rate exposure, facility availability and the terms and funding needs for the Billings acquisition.
- RIN/environmental-credit valuation and compliance costs, plus the status and potential costs of Wyoming remediation and the disclosed legal and tax matters.
- The impact of the 2021 sale-leaseback comparability item and the company’s non-GAAP adjustments on assessments of recurring performance.