Par Pacific Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Par operates refining, retail, and logistics businesses, with refineries in Hawaii, Wyoming, and Washington, and holds a 46% interest in Laramie Energy.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,310.4 million | $690.0 million | $3,416.6 million | $2,409.4 million |
| Operating income (loss) | $97.8 million | $2.8 million | $(31.4) million | $(203.9) million |
| Net income (loss) | $81.8 million | $(14.3) million | $(89.4) million | $(277.2) million |
| Adjusted EBITDA (non-GAAP) | $84.7 million | $(16.1) million | $34.7 million | $(52.7) million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $54.6 million | $26.0 million |
Margins and segments: Q3 refining Adjusted Gross Margin was $120.0 million, versus $16.3 million a year earlier; logistics was $22.7 million versus $15.3 million; retail was $32.5 million versus $31.0 million. For the first nine months, refining Adjusted Gross Margin was $135.3 million, logistics $65.3 million, and retail $89.6 million. These are non-GAAP measures and should not be treated as GAAP profit.
Cash, debt, and working capital: Cash and restricted cash totaled $205.3 million at September 30, up from $70.3 million at year-end 2020. Reported liquidity was $276.8 million. Debt principal was $583.0 million ($566.8 million net of unamortized discount and financing costs); obligations under inventory financing agreements were a further $668.4 million. Current assets were $1,051.6 million and current liabilities $1,295.2 million. The company reported compliance with debt instruments.
Material changes and drivers
- Q3 results improved with recovering product demand, higher crack spreads, a 16% increase in refining sales volume, and lower RIN prices that reduced quarterly RIN expense. Higher feedstock and purchased-product costs, derivatives, and inventory-financing costs offset some gains.
- Revenue rose substantially in both comparison periods, mainly reflecting higher crude and product prices and increased refining volumes. Nine-month results remained loss-making despite improvement.
- Nine-month results included a $63.9 million gain on Hawaii retail property sale-leasebacks and no repeat of the $67.9 million goodwill impairment recorded in 2020. The 2021 period also had $8.1 million of debt-extinguishment and commitment costs.
- Retail fuel margins were pressured by rising crude prices: down 4% in Q3 and 17% for the nine-month period year over year. Q3 sales volumes increased; nine-month volumes increased 7%.
- Cash from operations was affected by working-capital movements, including higher inventories and receivables, increased environmental-credit obligations, and increased inventory-financing balances. Sale proceeds and an $87.2 million equity offering contributed to liquidity; the offering increased shares outstanding.
Outlook, risks, and contingencies
- Management stated that cash flows and available capital resources should meet capital, turnaround, working-capital, and debt-service needs for the next 12 months. The 2021 capital expenditure and deferred-turnaround budget was $35–$45 million; spending through September was approximately $27.3 million.
- Management described demand recovery as uncertain amid COVID-19 and the Delta variant. Hawaii’s governor asked travelers to defer non-essential travel through October, though no new travel restrictions were imposed at the time.
- Commodity and regulatory exposure is significant. Management estimated that a $1-per-barrel change in average gross refining margins, at Q3 throughput, would change annualized operating income by approximately $49.4 million. RIN obligations and market prices, crude prices, and interest rates can materially affect results and liquidity.
- Gross environmental-credit obligations were $297.5 million, with $82.7 million of RINs and other environmental credits carried in inventory. The EPA had not set 2021 renewable-fuel volumetric requirements at filing; the company estimated its 2021 obligation using 2020 requirements.
- A Hawaii tax complaint alleges false claims concerning free-trade-zone tax returns and seeks unspecified damages, penalties, interest, and injunctive relief. The company disputes the allegations and said an unfavorable outcome was neither probable nor reasonably estimable. An updated state tax opinion may prompt audits of prior periods.
- Wyoming refinery environmental remediation accruals were $15.8 million; a wastewater treatment replacement was estimated at approximately $11.6 million. Some remediation costs are not reasonably estimable. Additional GHG and fuel regulations could increase costs or constrain operations.
- The Hawaii sale-leaseback generated cash proceeds of approximately $112.8 million and a reported gain, but also created long-term lease obligations: the properties were leased back for 15 years, with renewal options.
Important facts for investors to verify
- Whether improving refining margins and demand persist, and how crude/feedstock differentials, RIN prices, and derivative marks affect future earnings.
- Liquidity quality and working-capital needs, particularly inventory financing, environmental-credit liabilities, and access to discretionary facilities.
- Debt repayment and refinancing requirements, floating-rate exposure, and the effect of lease obligations on fixed charges.
- Cash-flow performance excluding asset-sale proceeds and other working-capital movements; distinguish reported GAAP results from Adjusted EBITDA and Adjusted Gross Margin.
- Developments in the Hawaii tax dispute and audits, Wyoming environmental projects, and evolving emissions and renewable-fuel requirements.