Par Pacific Holdings, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Par operates refining, retail and logistics businesses across Hawaii, Washington, Wyoming and other markets, and held a 46% interest in Laramie Energy. COVID-19 and falling crude prices materially affected conditions late in the quarter.
Financial results and liquidity
- Revenue: $1.204 billion, up 1% from $1.191 billion in Q1 2019.
- Earnings: Operating loss of $181.2 million and net loss of $222.3 million, versus operating income of $21.4 million and net income of $61.1 million a year earlier. Basic and diluted loss per share were both $4.18, compared with basic earnings per share of $1.23.
- Adjusted results (non-GAAP): Adjusted EBITDA was $10.7 million, down from $47.6 million; Adjusted Net Loss was $30.2 million versus Adjusted Net Income of $6.4 million.
- Cash flow: Operating activities provided $14.5 million, versus $56.8 million used in Q1 2019. Investing used $14.9 million and financing used $63.5 million. Cash, cash equivalents and restricted cash ended at $64.5 million, down from $128.4 million at year-end 2019.
- Liquidity: Management reported liquidity of $136.5 million, including $62.1 million of cash and access to inventory-financing arrangements and the ABL facility. The ABL revolver had no borrowings and an approximately $49 million borrowing base.
- Debt and obligations: Debt principal was $631.2 million; carrying debt, net of discounts and financing costs, was $609.9 million, including $12.3 million current maturities. Inventory-financing obligations were $399.7 million. Lease liabilities totaled approximately $408.5 million. The company reported compliance with debt covenants.
Material changes and segment performance
- Results included a $182.4 million inventory lower-of-cost-or-net-realizable-value adjustment, $67.9 million of goodwill impairment and a $45.3 million impairment of the Laramie investment. These charges were primarily non-cash.
- Refining Adjusted Gross Margin fell to $36.6 million from $85.7 million. Hawaii margin declined to $0.24 per throughput barrel from $3.74; Wyoming fell to negative $0.81 from $14.55, including a $14.5 million unfavorable FIFO inventory impact. Washington margin improved to $9.14 per barrel from $8.88.
- Segment operating results were: refining loss of $168.6 million versus income of $14.4 million; logistics income of $18.8 million versus $12.4 million; and retail loss of $18.1 million versus income of $10.1 million. Refining and retail results included impairment charges.
- Cash balances and inventory-financing obligations fell substantially from year-end, reflecting lower commodity prices and changes in working capital and financing activity. Net financing cash outflow included approximately $52.1 million of repayments under the J. Aron and MLC arrangements.
Outlook, commentary and risks
- Management said COVID-19 restrictions and reduced travel sharply weakened gasoline and jet-fuel demand, while the oil-market price collapse increased volatility. The full effect on results, cash flows and liquidity remained uncertain and could be material.
- Par reduced throughput at Hawaii and Wyoming, idled certain Hawaii units, adjusted product output and delayed the planned Hawaii turnaround to Q3 2020. After quarter-end, it announced 29 furloughs and 75% cash-salary reductions for the CEO and independent directors.
- Management expected cost and capital actions to reduce 2020 cash outlays by approximately $70–$80 million, including deferrals or delays to turnaround-related spending. The stated 2020 capital expenditure and deferred turnaround budget was $95–$110 million before those actions. Management believed available cash and resources would cover requirements for the next 12 months, but this depends on uncertain market conditions and financing availability. No earnings guidance was provided.
- Risks include prolonged demand weakness, crude and product-price volatility, reduced borrowing-base availability, customer credit deterioration, derivative and inventory-financing exposure, and the ability to maintain liquidity. Par’s Laramie credit-facility guarantee is limited to a pledge of its subsidiary equity interest; Laramie’s facility was extended to December 2021 after quarter-end.
- Environmental matters include a $16.3 million accrual for specified Wyoming refinery remediation and an estimated $11.6 million wastewater-treatment project. The filing also describes unresolved Delta-related claims totaling approximately $22.4 million, against which Par accrued about $0.5 million; the ultimate settlement remains uncertain.
Important facts for investors to verify
- Whether demand, refinery margins and throughput recovered, and whether the announced cost reductions and turnaround deferrals were achieved.
- Cash and borrowing availability under the ABL, J. Aron and MLC arrangements as commodity prices and collateral requirements changed.
- The assumptions and valuation effects behind the $182.4 million inventory adjustment, goodwill impairment and Laramie impairment.
- Debt-service capacity, covenant compliance, and refinancing or repayment needs for the convertible notes due 2021 and inventory-financing arrangements.
- Progress and costs for environmental remediation, the wastewater system, and the unresolved Delta claims.