Business context and reporting period
Par Pacific Holdings, Inc. filed this Form 10-K for the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter report. The company operates refining, retail and logistics businesses, with three refineries in Hawaii, Washington and Wyoming (154 Mbpd combined capacity) and 119 retail outlets in Hawaii, Washington and Idaho. It also owns a 46% interest in natural-gas producer Laramie Energy, whose carrying value was zero at year-end.
Key financial and operating metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $4.710 billion | $3.125 billion |
| Operating income (loss) | $(7.6) million | $(318.0) million |
| Net income (loss) | $(81.3) million; $(1.40) per diluted share | $(409.1) million; $(7.68) per diluted share |
| Adjusted EBITDA (non-GAAP) | $61.5 million | $(86.7) million |
| Adjusted net income (loss) (non-GAAP) | $(100.3) million | $(249.8) million |
| Cash from operations | $(27.6) million | $(37.2) million |
| Capital expenditures | $29.5 million | $63.5 million |
Year-end cash and cash equivalents were $112.2 million ($116.2 million including restricted cash). Management reported total liquidity of $178.7 million, including cash and available facilities. Debt principal was $579.9 million ($564.6 million net carrying value), versus $731.5 million principal at year-end 2020. Inventory-financing obligations were an additional $737.7 million, up from $423.7 million. Total assets were $2.570 billion and stockholders’ equity was $265.7 million.
Refining throughput averaged 135.2 Mbpd, versus 124.1 Mbpd in 2020. Segment operating results were: refining loss of $88.8 million; logistics income of $51.2 million; retail income of $81.2 million; and corporate, eliminations and other loss of $51.2 million. Adjusted gross margin per throughput barrel was $3.24 in Hawaii (2020: $(1.63)), $1.96 in Washington (2020: $3.88), and $12.66 in Wyoming (2020: $3.94). Retail fuel sales volume rose 6%; fuel margins fell 17%.
Material changes versus the prior comparable period
- Revenue increased 51%, primarily because crude oil and refined-product prices recovered from pandemic lows; Brent averaged $70.95/bbl versus $43.21 and WTI averaged $68.11/bbl versus $39.65. Higher revenue therefore does not by itself indicate a comparable improvement in unit profitability.
- The net loss narrowed by $327.8 million and Adjusted EBITDA improved by $148.2 million. Management attributed the improvement chiefly to stronger realized crack spreads, favorable Hawaii feedstock and derivative costs, and higher Wyoming sales volumes.
- Cash from operations remained negative. Working capital was pressured by higher commodity prices and volumes, including a $350.7 million increase in inventories; inventory-financing obligations increased $252.9 million.
- 2021 included a $64.7 million net gain on asset sales, mainly from sale-leasebacks of 22 Hawaii retail properties. The transactions generated $112.8 million net proceeds and created 15-year leases; rent expense increased. 2020 included $85.8 million of goodwill and asset impairments and a $45.3 million Laramie investment impairment.
- RIN expense was $118.8 million in 2021. Gross environmental-credit obligations were $311.0 million at year-end, while RIN and other environmental-credit inventory was carried at $120.1 million.
Outlook, risks and unusual items
Management expects continued business recovery in 2022, while noting uncertainty from COVID-19 variants, travel restrictions and the pace of economic recovery. It forecast 2022 capital expenditures and deferred turnaround costs of $70–$80 million, including the Washington refinery turnaround. It expects annual maintenance and sustaining capital of $35–$45 million and planned turnaround spending of $80–$90 million over the next five years. Management said available cash and capital resources should cover current needs for the next 12 months; this is an expectation, not a guarantee.
- Commodity and demand exposure: Refining results depend on volatile crude prices, crack spreads, product demand and inventory-financing costs. Management estimates a $1/bbl change in average gross refining margin would change annualized operating income by about $48.7 million, all else equal.
- Debt and liquidity: 2022 estimated interest payments were $46.6 million. The 7.75% notes mature in 2025; the Term Loan B and remaining 12.875% notes mature in 2026. The company reported compliance with debt covenants at year-end. In February 2022, after year-end, it amended the ABL facility, increasing its maximum to $105 million and extending maturity to February 2025.
- Environmental and regulatory exposure: The Wyoming refinery had $15.6 million accrued for identified remediation work; some additional investigation and remediation costs were not estimable. A replacement wastewater-treatment system was estimated to cost about $11.6 million. New Washington emissions and low-carbon-fuel rules were still undergoing rulemaking; Tacoma adopted restrictions on new petroleum storage and limits on clean-fuel infrastructure additions.
- Contingencies: The company disputes a Washington tax audit determination concerning historical raw vacuum gas oil sales and a Hawaii lawsuit involving tax treatment of free-trade-zone business. Management considered unfavorable outcomes neither probable nor reasonably estimable. Two related legacy bankruptcy claims total about $22.4 million; the company accrued $0.5 million for claims considered probable and estimable and said full-claim share issuance was remote.
- Other items: The Par West refinery remained idled and was deemed abandoned in 2020; alternative site uses were under evaluation. Collective bargaining agreements for 226 Hawaii and Washington refinery employees expired January 31, 2022 and were under automatic extensions during negotiations. The company had about $1.6 billion of federal NOL carryforwards, but a valuation allowance covered substantially all net deferred tax assets. No cash dividend was expected in the foreseeable future.
Most important facts for investors to verify
- Whether operating cash flow turns positive as refining demand and margins recover, and how much of revenue growth reflects commodity prices rather than sustainable volume or margin improvement.
- Availability and terms of inventory financing, the renewal or replacement of the Washington intermediation arrangement, and liquidity after substantial working-capital needs.
- Execution and cost of the 2022 Washington turnaround and the company’s multi-year maintenance and turnaround program.
- Final RFS/RIN obligations and costs, Washington climate-rule requirements, and the eventual costs and schedule of Wyoming remediation and wastewater upgrades.
- Resolution or developments in the disputed tax matters, legacy claims and union negotiations; also review the February 2022 ABL amendment and subsequent-period filings.
The independent auditor issued an unqualified opinion on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting as of December 31, 2021.