Par Pacific Holdings, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Par operates refining, retail and logistics businesses, with refineries in Hawaii, Wyoming and Washington, and holds a 46% interest in Laramie Energy.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $888.7 million | $1,204.1 million |
| Operating loss | $44.7 million | $181.2 million |
| Net loss | $62.2 million; $1.15 per share | $222.3 million; $4.18 per share |
| Adjusted EBITDA (non-GAAP) | Loss of $43.3 million | Income of $13.7 million |
| Adjusted net loss (non-GAAP) | $84.4 million | $27.3 million |
| Cash from operating activities | Use of $30.7 million | Provided $14.5 million |
| Cash, cash equivalents and restricted cash, quarter-end | $216.7 million | $70.3 million at Dec. 31, 2020 |
Revenue fell 26% year over year, primarily reflecting lower refining sales volumes and product cracks. Refining Adjusted Gross Margin was a loss of $3.9 million, versus income of $39.6 million; Logistics was $19.2 million, versus $27.7 million; and Retail was $25.3 million, versus $31.4 million. Refining throughput was 127.4 thousand barrels per day versus 151.5 thousand, while refined product sales volume fell to 130.0 thousand barrels per day from 179.7 thousand.
The year-over-year improvement in GAAP net loss was substantially affected by the prior-year $67.9 million goodwill impairment, $45.3 million Laramie investment impairment, and a $193.0 million favorable change in inventory valuation adjustments, as well as a current-period $64.9 million asset-sale gain. Despite better GAAP results, Adjusted EBITDA weakened, reflecting lower volumes, unfavorable crack spreads and higher RIN costs.
Balance sheet, debt and liquidity
- Total assets were $2.50 billion and total liabilities $2.23 billion at March 31, 2021. Stockholders’ equity was $276.1 million.
- Debt principal was $676.7 million; reported debt net of discounts and financing costs was $656.0 million, including $58.8 million of current maturities. The $48.7 million 5.00% convertible notes were due in 2021. The ABL revolver had no borrowings and a borrowing base of approximately $70.5 million.
- Inventory financing obligations were $592.6 million, up from $423.7 million at year-end. These include the supply-and-offtake and Washington intermediation arrangements and are separate from reported long-term debt.
- Management reported liquidity of $286.9 million and stated cash flows and available capital resources should cover current capital, turnaround, working-capital and debt-service needs for the next 12 months. The filing does not provide a single fully itemized reconciliation of this liquidity figure in the cited discussion.
- Operating cash use was driven in part by inventory growth and receivables, partly offset by increased inventory-financing obligations and accrued liabilities. Investing cash flow was positive $94.7 million, primarily from sale-leaseback proceeds; financing cash flow was positive $82.5 million.
Material changes and unusual items
- Par sold 22 Hawaii retail properties for approximately $112.8 million net of transaction fees and recorded a $64.9 million gain. It leased the properties back for an initial 15-year term, with renewal options, creating material ongoing lease commitments.
- A March public offering of 5.75 million shares at $16.00 per share generated approximately $87.4 million net. The issuance increased shares outstanding; proceeds were intended for general corporate purposes, including debt repayment, capital spending and working capital.
- Par repaid the Retail Property Term Loan and PHL Term Loan in February and the Mid Pac Term Loan in March; it also repurchased and cancelled $2.0 million principal of its 7.75% notes. The company reported compliance with its debt instruments at quarter-end.
- A Wyoming pension plan amendment froze future benefit accruals for hourly participants, reducing the projected obligation by $6.0 million; Par recorded a $2.0 million gain and $4.0 million of other comprehensive income.
- The 2020 comparison included $45.0 million of equity losses from Laramie; Par had discontinued equity-method accounting after its investment balance was reduced to zero.
Outlook, risks and contingencies
- Management cited continuing COVID-19-related demand suppression and said the pandemic’s ultimate effects on operations, liquidity and cash flows remained uncertain and could be material. It deferred or delayed certain Washington refinery turnaround capital spending.
- Management’s 2021 budget for capital expenditures and deferred turnaround costs was $35–$45 million. Q1 spending on these items totaled approximately $13.8 million.
- The Hawaii supply-and-offtake agreement was extended to June 30, 2021; Par expected to finalize a new multi-year agreement in Q2. The Washington intermediation agreement was extended through March 31, 2022.
- RIN and environmental-credit obligations were $260.0 million at market value, compared with $150.5 million at year-end; related credits carried in inventory were $36.3 million. RIN price volatility and unannounced 2021 EPA requirements create uncertainty.
- Environmental matters include $16.3 million accrued for certain Wyoming refinery remediation work and an estimated $11.6 million for a replacement wastewater treatment system. Some remediation costs are not reasonably estimable; possible future penalties were also disclosed.
- Two unresolved Delta-related claims totaled approximately $22.4 million; Par accrued approximately $0.5 million for claims it considered probable and estimable and said the likelihood of issuing stock for the full claim amount was remote.
- Other key exposures include commodity and interest-rate volatility, refinery demand and crack spreads, environmental regulation, and Laramie Energy’s credit facility maturity on December 15, 2021. Par’s guarantee exposure on that facility is limited to its pledged equity interest in a subsidiary.
Important facts for investors to verify
- Whether refining volumes and margins recover from COVID-era demand weakness, and whether Adjusted EBITDA turns positive.
- How much of the reported liquidity is readily available after working-capital, collateral and inventory-financing needs, and progress on refinancing the 2021 convertible notes.
- Completion and terms of the new Hawaii supply-and-offtake agreement, plus continued availability and cost of inventory financing.
- The cash economics of the Hawaii sale-leaseback after rent, other lease costs, debt repayments and the recognized gain; assess the resulting long-term lease obligations.
- RIN/environmental-credit prices and obligations, Wyoming remediation costs, and any developments in the Delta claims or Laramie Energy credit facility.