PAR PETROLEUM CORPORATION — Q2 2013 Form 10-Q
Period: Three and six months ended June 30, 2013. The filing is by Par Petroleum Corporation, identified in the request as PAR Pacific Holdings, Inc. Figures are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context and reporting period
The company emerged from Chapter 11 on August 31, 2012, adopted fresh-start accounting, contributed most of its oil and gas assets to Piceance Energy, and acquired oil logistics and marketing business Texadian on December 31, 2012. Accordingly, 2013 Successor results and 2012 Predecessor results are not directly comparable. The company also signed an agreement in June 2013 to acquire Tesoro Hawaii, including a refinery, terminals, pipelines and retail assets; the acquisition had not closed by June 30.
Financial performance and position
| Metric | Q2 2013 | Six months 2013 |
|---|---|---|
| Total revenue | $34.7 million | $99.6 million |
| Operating loss | $3.3 million | $3.4 million |
| Net loss | $9.2 million; $0.06 per share | $14.0 million; $0.09 per share |
| Operating cash flow | Not separately provided | $11.8 million |
| Investing cash flow | Not separately provided | $(37.5) million |
| Financing cash flow | Not separately provided | $62.5 million |
- Marketing and transportation generated $32.4 million of Q2 revenue and $95.8 million for the six months, against expenses of $29.1 million and $82.9 million, respectively. The segment reported operating income of $2.1 million in Q2 and $7.9 million year to date.
- Oil and gas sales were $2.2 million in Q2 and $3.8 million year to date. The company recorded $1.5 million of equity-method income from Piceance Energy in Q2, but a $0.9 million loss for the six-month period.
- At June 30, cash and cash equivalents were $43.0 million, restricted cash $0.3 million, and acquisition deposits $40.0 million. Current assets were $105.3 million and current liabilities $33.2 million. Total assets were $230.4 million; total liabilities $141.5 million; equity $88.9 million.
- Reported debt, net of discount, was $91.5 million, with no current maturities. It included $65.2 million of New Tranche B loans and $31.6 million of delayed-draw term loans before discount. New Tranche B interest rises from 9.75% to 14.75% beginning September 29, 2013; debt is due August 31, 2016.
- Piceance Energy, accounted for outside the consolidated balance sheet, had $91.0 million of debt. Par’s guarantee is limited to its pledged equity interest; Piceance distributions to owners are generally restricted.
Changes versus the prior comparable period
- Q2 net loss narrowed to $9.2 million from the Predecessor’s $15.9 million; six-month net loss narrowed to $14.0 million from $29.4 million. The comparison is substantially affected by fresh-start accounting, the contribution of oil and gas assets to Piceance Energy, and Texadian’s inclusion only in 2013.
- Texadian added substantial marketing and transportation revenue and expenses. Lower oil and gas revenue and operating costs primarily reflect the contribution of most oil and gas assets to Piceance Energy.
- Six-month operating cash flow improved from cash use of $13.2 million in 2012 to cash generation of $11.8 million in 2013. Investing outflow primarily reflects the $40.0 million Tesoro Hawaii-related deposits; financing inflow primarily reflects borrowings and release of $19.0 million of restricted cash.
Outlook, risks, contingencies and unusual items
- The Tesoro Hawaii agreement provides for $75.0 million cash consideration, working-capital and inventory adjustments, and possible earnouts of up to $40.0 million. Closing is subject to conditions, including delivery of an operational refinery and confirmation of at least $150 million adjusted net worth. Deposits totaled $40.0 million at June 30 and $47.0 million by August 12; additional startup and turbine costs were also funded after quarter-end.
- To support the acquisition and subsequent operations, the company reported a binding $200.0 million common-stock private-placement commitment at $1.39 per share, plus commitments for crude supply/intermediation and an asset-based credit facility of up to $125.0 million. Completion and terms of these financing arrangements remain important to verify.
- Q2 included $3.9 million of trust litigation and settlement expense. Six-month results included $5.3 million of unrealized derivative losses, primarily from remeasurement of warrant liabilities, and $0.65 million of state income tax expense. Six-month other income of $0.77 million included a tax refund and legal settlement.
- Approximately $50.2 million of bankruptcy claims remained unresolved at June 30; $7.2 million was accrued for claims deemed probable and estimable. A U.S. Government claim of approximately $22.4 million concerning plugging and abandonment obligations remained in litigation; management said payment of the full claim was considered remote.
- The company may be required to contribute up to $20 million to Piceance Energy; failure to fund could dilute its interest. Texadian’s terminaling and storage agreement includes a minimum purchase commitment of approximately $28 million over four years.
- Management reported disclosure controls were ineffective and material weaknesses in internal control over financial reporting remained unremediated as of June 30. The company was using outside accounting consultants while remediation efforts continued.
- Management expected general and administrative expense to increase in Q3 as it integrated Tesoro Hawaii and added refining capabilities. No specific earnings or revenue guidance was provided.
Investor verification priorities
- Confirm whether the Tesoro Hawaii acquisition closed, total startup and purchase costs, and the status and availability of committed equity and debt financing.
- Assess liquidity after acquisition deposits, high-cost debt interest, and any required Piceance Energy capital calls; verify borrowing availability and restrictions on affiliate distributions.
- Track unresolved bankruptcy claims, particularly the U.S. Government and Macquarie claims, potential share issuance, and the adequacy of the $7.2 million accrual.
- Review subsequent control-remediation disclosures and whether material weaknesses have been resolved.
- Evaluate potential dilution from the $200 million equity placement and outstanding warrants, and consider that reported year-over-year comparisons reflect a different business and accounting basis.