Par Petroleum Corporation — Q1 2013 Form 10-Q
Issuer note: The filing names Par Petroleum Corporation, while the request metadata identifies Par Pacific Holdings, Inc. The filing reports the quarter ended March 31, 2013.
Business context and reporting period
Par emerged from Chapter 11 on August 31, 2012, adopted fresh-start accounting, and retained a 33.34% equity-method interest in Piceance Energy. It acquired Texadian, an oil transportation, distribution and marketing business, on December 31, 2012; Texadian’s results are included beginning January 1, 2013. The company therefore reported two segments: natural gas and oil exploration and production, and commodity transportation and marketing.
Comparisons with Q1 2012 are not like-for-like because of fresh-start accounting, the contribution of most oil and gas assets to Piceance Energy, and the Texadian acquisition.
Financial performance and liquidity
| Metric | Q1 2013 | Comparable period / balance date |
|---|---|---|
| Total revenue | $64.9 million | $9.9 million in Q1 2012 |
| Net loss | $4.8 million; loss per share $0.03 | $13.5 million; loss per share $0.46 in Q1 2012 |
| Operating loss | $0.2 million | $5.9 million loss in Q1 2012 |
| Operating cash flow | $(8.6) million | $(3.6) million in Q1 2012 |
| Investing cash flow | $2.6 million provided | $(0.7) million in Q1 2012 |
| Financing cash flow | $14.5 million provided | No financing cash flow in Q1 2012 |
| Cash and restricted cash | $14.7 million unrestricted; $15.4 million restricted | March 31, 2013 |
| Debt | $58.7 million gross principal and accrued in-kind interest; $53.1 million net of debt discounts | March 31, 2013 |
| Current assets / current liabilities | $65.2 million / $61.1 million | March 31, 2013 |
Texadian generated $63.3 million of marketing and transportation revenue against $53.8 million of related expenses, a derived gross contribution of approximately $9.5 million, or 15.1% of that revenue. The company recorded a $2.4 million equity-method loss from Piceance Energy. Interest and financing costs were $2.9 million; a $2.2 million unrealized derivative loss was primarily related to changes in the value of the company’s warrants and embedded derivatives. Other income of $0.7 million included a $0.5 million state tax refund and a $0.2 million legal settlement.
Cash increased by $8.5 million during the quarter, supported by $8.0 million of additional borrowing and release of $6.5 million in restricted cash. Restricted cash remained unavailable for general operations. The company reported approximately $9.0 million available for future borrowing under its delayed-draw loan facility.
Material changes, outlook and risks
- Marketing and transportation revenue was new to the reported results following the Texadian acquisition. Natural gas and oil sales fell to $1.6 million from $9.9 million, mainly because most producing assets had been contributed to Piceance Energy.
- Texadian’s transportation and marketing segment reported $5.7 million of operating income; the exploration and production segment reported a $5.9 million operating loss before the $2.4 million equity-method loss.
- Management said Piceance Energy was expected to continue incurring losses until natural gas prices improve. No quantified company-wide earnings or revenue guidance was provided.
- Par may be called on to contribute up to $20 million to Piceance Energy. Failure to fund an approved call could dilute its interest. Piceance Energy’s credit agreement generally restricts distributions to owners.
- At March 31, the $35 million Tranche B loan was scheduled to mature July 1, 2013. An April 19 amendment subsequently extended maturity to December 31, 2013 and required about $1.3–$1.4 million of repayment; the filing gives differing approximate repayment amounts in separate sections. The amendment also tightened mandatory-prepayment terms.
- The company’s 9.75% loans allow interest to be paid in kind and include repayment premiums; debt is secured by substantially all company assets, subject to stated exceptions. Warrants exercisable for about 9.7 million shares at $0.01 per share create potential dilution and are carried as a liability.
- Bankruptcy-related claims remained unresolved: 53 claims totaling about $53.9 million were outstanding, including a U.S. Government claim of about $22.4 million tied to plugging and abandonment litigation. The recorded settlement accrual was $5.9 million; final claim outcomes and share issuance were uncertain.
- Management reported disclosure controls were ineffective because material weaknesses in internal control over financial reporting remained unremediated. Consultants were assisting with close and reporting processes.
- Texadian’s April 22 terminaling and storage agreement carries a four-year minimum purchase commitment of approximately $28 million. The filing also identifies commodity-price, counterparty, liquidity, debt, acquisition and NOL-preservation risks.
Most important facts for investors to verify
- Confirm the correct issuer identity and the accounting comparability limitations between successor and predecessor periods.
- Review the Tranche B amendment, precise repayment amount, remaining balance and near-term liquidity after the extension.
- Assess cash availability after excluding restricted funds, potential Piceance Energy capital calls and restrictions on distributions.
- Track Texadian’s operating cash generation and performance against its minimum purchase and other operating commitments.
- Monitor unresolved bankruptcy claims, potential equity issuance, warrant dilution and progress in remediating material weaknesses in financial controls.