PAR Petroleum Corporation (formerly Delta Petroleum) — 2012 Form 10-K
Business context and reporting period
Fiscal year ended December 31, 2012. The company emerged from Chapter 11 on August 31, 2012, changed its name from Delta Petroleum Corporation, and applied fresh-start accounting. Accordingly, the filing presents an eight-month Predecessor period (January 1–August 31) and a four-month Successor period (September 1–December 31); these periods are not directly comparable.
Following the reorganization, the principal asset was a 33.34% non-operated interest in Piceance Energy, LLC. Laramie Energy controls day-to-day operations. Par acquired crude-oil marketing and logistics company Texadian on December 31, 2012; Texadian’s results are therefore not included in 2012 consolidated operating results and are expected to be included from January 1, 2013.
Financial and operating highlights
| Metric | Reported amount |
|---|---|
| Successor revenue, September–December 2012 | $2.1 million oil and gas sales |
| Successor net loss | $8.8 million, or $0.06 per diluted share |
| Successor operating loss | $6.3 million; operating expenses were $7.2 million |
| Successor operating cash flow | $(4.6) million |
| Cash and restricted cash at December 31 | $6.2 million unrestricted; $24.0 million restricted |
| Debt at December 31 | $42.4 million net of unamortized discounts; $35.0 million Tranche B principal was current |
| Proved reserves and reserve value | 167.9 Bcfe combined; approximately $80.0 million PV-10 and standardized measure |
The Successor loss included a $4.3 million unrealized loss on warrant and embedded derivative liabilities and $1.3 million of equity-method losses from Piceance Energy. Piceance Energy itself reported a $4.0 million net loss for September–December 2012, including its $3.3 million management fee to Laramie. The filing does not provide a meaningful consolidated profit margin for the short Successor period.
Predecessor oil and gas sales were $23.1 million for January–August 2012 versus $63.9 million for full-year 2011; the periods differ in length and operating circumstances. Predecessor net loss was $45.4 million for the eight months through August 2012 and $470.1 million for 2011. Impairments were $151.3 million in the 2012 Predecessor period and $420.4 million in 2011. These results are not comparable to the Successor period, in part because of bankruptcy-related transactions and fresh-start accounting.
Material changes versus prior periods
- Substantially all Piceance Basin assets were contributed to Piceance Energy in exchange for the 33.34% interest and cash proceeds used largely for bankruptcy expenses and debt repayment. The company’s direct production and sales base consequently contracted.
- Creditor claims received approximately 147.7 million shares under the Plan; former Delta shareholders received no consideration. At March 25, 2013, approximately 150.1 million shares were outstanding, and lenders held warrants for up to 9.6 million shares, subject to adjustment.
- Texadian added a commodity marketing and logistics business, with unaudited 2012 revenue of $515.5 million and net income of $2.3 million. These are Texadian standalone figures, not Par’s consolidated 2012 results.
- Oil and gas proved reserves fell sharply on a directly owned basis after assets were contributed to the joint venture; the reported 167.9 Bcfe total includes Par’s proportionate share of Piceance Energy reserves.
Liquidity, outlook, risks, and unusual items
- At year-end, the company reported $17.0 million available for future borrowings under its Loan Agreement, in addition to $6.2 million unrestricted cash. In January 2013 it drew a further $8.0 million for Texadian working capital.
- The $35.0 million Tranche B Loan matured July 1, 2013, with 9.75% interest and a 5% exit fee. The $30.0 million Compass letter-of-credit facility matured December 26, 2013 and required cash collateral equal to 105% of outstanding letters of credit. The company had $19.0 million restricted for this facility at year-end. The filing identifies these maturities as significant liquidity constraints.
- Piceance Energy’s $400 million revolving facility had a $140 million borrowing base and $90 million outstanding at year-end. It generally prohibits distributions to owners, limiting Par’s ability to receive cash from its main asset. Par could also be required to contribute up to $20 million to Piceance Energy; failure to fund a capital call may dilute its interest.
- Management reported no material planned future capital expenditures, while noting possible Point Arguello spending and unpredictable strategic investments. No quantified earnings or revenue guidance is provided.
- Key risks include dependence on Piceance Energy and its operator, low and volatile natural-gas prices, limited liquidity and near-term debt maturities, customer concentration, potential dilution from unresolved bankruptcy claims and warrants, and uncertain ability to use tax attributes. The company estimated $1.286 billion of federal NOL carryforwards, but their use depends on future taxable income and continued compliance with ownership-change restrictions.
- At March 2013, 56 bankruptcy claims totaling about $54.8 million remained unresolved; the largest was a $22.4 million U.S. Government claim concerning offshore plugging and abandonment. The company considered full stock settlement of that claim remote, but outcomes and share dilution remained uncertain. The General Recovery Trust’s litigation recoveries were also uncertain.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2012, with a material weakness that had not been remediated. Year-end fresh-start accounting adjustments also changed amounts and presentation previously reported for the September 2012 quarter. The filing describes the correction as immaterial to the previously issued Predecessor statements.
- Texadian’s results are exposed to crude-price, counterparty, transportation, and operating risks. Its ten largest customers represented approximately 95% of 2012 operating revenues; the company also disclosed significant customer concentration in its oil and gas sales.
Important facts for investors to verify
- How the July 2013 Tranche B maturity and December 2013 letter-of-credit maturity were refinanced, repaid, or otherwise addressed, and the resulting cash availability and borrowing terms.
- Whether Piceance Energy can generate distributable cash, its borrowing-base status and covenant compliance, and any capital calls or dilution to Par’s 33.34% interest.
- The final resolution, cash or share settlement, and dilution impact of the remaining bankruptcy claims, especially the U.S. Government plugging-and-abandonment claim.
- Texadian’s post-acquisition revenue, gross profit, cash generation, working-capital needs, customer retention, and hedging results; its standalone revenue should not be mistaken for consolidated 2012 revenue.
- Progress remediating the disclosed material weakness and whether later filings report effective controls or further accounting corrections.
- Availability of the stated NOL carryforwards after the bankruptcy-related ownership change, tax attribute reduction, and continuing transfer restrictions.