Par Pacific Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Par operates refining, retail, and logistics businesses, with three refineries in Hawaii, Wyoming, and Washington and 154,000 barrels per day of total operating throughput capacity. It also held a 46% investment in natural-gas producer Laramie Energy.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $1,350.3 million | $888.7 million; up 52% |
| Operating loss | $121.1 million | $44.7 million loss |
| Net loss | $137.1 million; $2.31 per diluted share | $62.2 million; $1.15 per diluted share |
| Adjusted EBITDA (non-GAAP) | $8.3 million | $34.4 million loss |
| Adjusted net loss (non-GAAP) | $31.4 million | $75.4 million loss |
| Operating cash flow | $7.7 million used | $30.7 million used |
| Capital expenditures | $16.3 million | $8.2 million |
Revenue growth reflected higher commodity prices and crack spreads; crude throughput and sales volumes were lower overall, notably at Washington during a turnaround. Reported losses included substantial non-cash inventory and derivative effects. Management’s adjusted results remove specified timing, valuation, and other items and are non-GAAP measures.
Margins and segments: Refining Adjusted Gross Margin was $58.7 million, versus $5.0 million a year earlier, as stronger crack spreads and lower RIN costs more than offset higher feedstock, purchased-product, financing, and fuel-burn costs. Refining nevertheless reported a $118.3 million operating loss, including the effects of inventory valuation and derivatives. Logistics operating income was $9.9 million (prior year $10.1 million); retail operating income was $4.0 million (prior year $49.4 million). The prior-year results included approximately $64.9 million of asset-sale gains, principally from Hawaii retail-property sale-leasebacks.
Balance sheet at March 31: Cash and cash equivalents were $140.9 million, plus $4.0 million restricted cash. Current assets were $1,463.8 million and current liabilities $1,828.6 million. Inventories were $1,027.1 million, compared with $790.3 million at year-end. Long-term debt, net, was $576.5 million; total debt principal was $601.7 million. Obligations under inventory-financing agreements were $981.4 million, up from $737.7 million. Stockholders’ equity fell to $125.9 million from $265.7 million, primarily reflecting the quarterly net loss.
Management reported liquidity of $212.0 million, including cash and available borrowing capacity, and said it expected cash flows and available resources to meet capital expenditure, working-capital, and debt-service needs for the next 12 months. The company was in compliance with its debt instruments at quarter-end. Its amended ABL had $25.0 million drawn, $31.6 million of letters of credit, and a borrowing base of approximately $127.8 million. The April 25 amendment increased the J. Aron discretionary draw facility limit from $165 million to $215 million.
Material changes, outlook, and risks
- Management attributed improvement in adjusted EBITDA and adjusted net loss mainly to better refining crack spreads and lower RIN costs. GAAP net loss worsened year over year, principally because Q1 2021 included sale-leaseback gains and a pension-curtailment gain that did not recur, as well as higher operating and employee costs in 2022.
- Commodity markets were highly volatile amid recovering demand and Russia’s invasion of Ukraine. Par stopped buying Russian crude for its Hawaii refinery on March 3, 2022 and sourced other grades. COVID-19 demand effects remained uncertain; management noted improving travel expectations but gave no specific financial guidance.
- Commodity exposure is material: management estimated that a $1-per-barrel change in average gross refining margins, based on Q1 throughput, would change annualized operating income by approximately $42.6 million. A 1% increase in variable rates was estimated to increase annual costs by about $4.4 million in cost of revenues and $4.6 million in interest expense.
- Environmental and regulatory exposures include renewable-fuel/RIN requirements, greenhouse-gas rules, and refinery remediation. Par had accrued $15.4 million for identified Wyoming refinery remediation components and estimated approximately $11.6 million to design and construct a replacement wastewater treatment system; some remediation costs were not reasonably estimable.
- Legal and tax matters include a $1.4 million Washington tax assessment that Par intends to appeal, a disputed Hawaii free-trade-zone tax complaint with unspecified claimed damages, and unresolved Delta-related claims of approximately $22.4 million for which Par had accrued approximately $0.5 million. Management said the likelihood of an unfavorable outcome in the cited tax matters was neither probable nor reasonably estimable.
- Par repurchased 362,130 shares under its $50 million authorization for $5.0 million during the quarter. It paid no dividends and said it did not expect to do so in the foreseeable future. Management was considering strategic alternatives for its Laramie Energy investment.
Important facts for investors to verify
- How much of the GAAP refining loss reflects inventory-financing and derivative valuation effects, versus underlying operating performance; review the non-GAAP reconciliations and definitions.
- Whether working-capital needs, inventory-financing balances, collateral requirements, and RIN obligations remain manageable as commodity prices and refining margins change.
- Washington refinery turnaround timing, throughput recovery, and associated deferred costs and capital spending.
- Availability and terms of borrowing capacity, debt maturities and covenants, and the effect of floating-rate exposure.
- Developments in Russia-Ukraine-related crude sourcing, COVID-19 demand, environmental compliance, and the disclosed legal and tax contingencies.