PAR Pacific Holdings, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also reports unaudited quarterly results, including Q4; it is an annual report, not a standalone quarterly filing. Par operates refining, retail and logistics businesses in Hawaii and Wyoming, holds a 42.3% interest in natural-gas producer Laramie Energy, and reported a Texadian segment whose active commodity operations had ceased.
Financial performance and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $1,865.0 million | $2,066.3 million |
| Operating income (loss) | ($16.5) million | $61.5 million |
| Net loss | ($45.8) million; ($1.08) per share | ($39.9) million; ($1.06) per share |
| Adjusted EBITDA (non-GAAP) | $33.4 million | $110.4 million |
| Adjusted net income (loss) (non-GAAP) | ($49.8) million | $14.3 million |
| Cash from operating activities | ($23.9) million | $132.4 million |
Revenue fell about 10%; lower crude prices reduced reported sales values, while the Wyoming refinery contributed only from its July 14 acquisition date. The refining segment swung from $71.8 million operating income to a $7.8 million operating loss. Hawaii refining adjusted gross margin declined to $139.1 million from $192.4 million, reflecting weaker crack spreads and turnaround impacts. Retail and logistics remained profitable, with 2016 operating income of $22.2 million and $21.4 million, respectively. No consolidated gross or operating margin percentage is stated; operating income was negative for the year.
Q4 2016 revenue was $563.1 million, operating income $28.3 million and net income $13.7 million ($0.30 per share), versus Q4 2015 revenue of $443.5 million, an operating loss of $10.1 million and a net loss of $66.8 million ($1.72 per share). Quarterly data are unaudited.
At year-end, cash was $47.8 million (down from $167.8 million); current assets were $403.1 million and current liabilities $382.8 million. Debt principal was $400.4 million, or $370.4 million net of discounts and financing costs; cash did not include the separate $225.1 million obligation under inventory-financing agreements. Total available liquidity was $92.1 million at December 31 and $106.6 million at February 28, 2017. Par reported compliance with debt covenants at year-end. The filing says cash flows and available resources should cover current needs for the next 12 months, while noting future capital access is not assured.
Material changes and unusual items
- Acquired Wyoming Refining, an 18,000-barrel-per-day refinery and associated logistics assets, for $209.4 million cash consideration and assumed $68.1 million of debt. It contributed $174.6 million revenue and $0.7 million net income from acquisition through year-end.
- Completed a major Hawaii refinery turnaround and subsea-pipeline maintenance in Q3. Turnaround-related deferred costs were $32.7 million, to be amortized over three years; downtime, imported replacement products and higher feedstock and maintenance costs weighed on results.
- Increased Laramie Energy ownership from 32.4% to 42.3% after a $55 million contribution. Par recorded $22.4 million of equity-method losses from Laramie in 2016; distributions to owners are generally restricted under Laramie’s credit facility.
- Financed acquisitions and operations with $115 million of 5% convertible senior notes due 2021, a $65 million secured term loan, and equity proceeds. A $49 million net rights offering was used to repay most Bridge Notes; remaining principal and interest converted into shares.
- Cash used in investing activities was $286.2 million, principally the Wyoming acquisition, Laramie investment and $24.8 million in capital expenditures. Financing activities provided $190.1 million. The company’s 2016 operating cash flow was later corrected from $15.8 million used to $23.9 million used; the filing explains the original press release omitted financing cash flows for insurance-premium financing.
Outlook, risks and contingencies
- 2017 capital expenditure budget, including major maintenance: $40–$45 million. The filing provides no specific earnings, revenue or margin guidance.
- Management cited volatile and weak refining crack spreads as a key earnings risk. Hawaii throughput averaged 70.2 thousand barrels per day (75% utilization) in 2016; Wyoming averaged 15.8 thousand barrels per day after acquisition (88% utilization).
- RIN compliance cost was $8.2 million for Hawaii and $4.0 million for Wyoming in 2016; the company expected approximately $8.5 million for each refinery in 2017. Hawaii lost small-volume-refinery status and must meet Tier 3 gasoline standards within 30 months of June 21, 2016.
- The Hawaii refinery consent decree has estimated compliance costs of about $30 million. Tesoro is responsible for eligible pre-acquisition capital reimbursements and applicable fines and penalties; it had reimbursed $6.3 million of $9.6 million incurred in 2016. Completion work, deadlines and equipment performance remain risks.
- Wyoming refinery environmental response costs for better-understood issues are preliminarily estimated at $18 million, with about one-third expected over five years and the rest over roughly 30 years. A new wastewater-treatment system is estimated at $11.6 million, in addition to about $0.5 million to modify or close existing ponds. Some remediation costs remain unestimable; anticipated pipeline and other potential penalties could exceed $100,000.
- Other notable exposures include the J. Aron inventory-financing relationship and potential inventory repurchase obligation at termination; variable-rate debt and commodity-price exposure; possible dilution from convertible notes, warrants or unresolved bankruptcy claims; and uncertain realization of approximately $1.6 billion in tax-loss carryforwards. Two predecessor-bankruptcy claims totaling about $22.4 million remain unresolved; management considers issuing stock for the full amount remote.
- Auditors gave an unqualified opinion on the financial statements and internal controls. Management and the auditor excluded the acquired Wyoming Refining business from the 2016 internal-control assessment; it represented 32% of consolidated assets and 9% of revenue.
Investor verification priorities
- Reconcile the 2016 cash-flow correction and assess the underlying operating cash generation, working-capital movements and turnaround cash costs.
- Review debt maturities, covenants, refinancing needs and the $225.1 million inventory-financing obligation, including the terms and termination exposure of the J. Aron agreements.
- Track post-acquisition Wyoming refinery performance, integration, environmental remediation estimates, pipeline compliance and the scheduled 2019–2020 turnaround.
- Verify the timing, cost and reimbursement status of Hawaii consent-decree work and Tier 3 compliance, along with actual RIN expenses.
- Assess whether refining margins recover enough to support debt service and planned capital spending, and whether Laramie can develop reserves and ultimately make distributions.
- Monitor convertible-note dilution, concentrated ownership, potential bankruptcy-claim dilution and the availability of NOLs subject to tax and ownership-change restrictions.