Business context and reporting period
Par Pacific Holdings, Inc. (NYSE: PARR) filed this Form 10-K for the fiscal year ended December 31, 2020. The company operates refining, retail, and logistics businesses in Hawaii, Washington, Wyoming, and Idaho. Its refining system has more than 150 Mbpd of operating throughput capacity, including the Tacoma and Newcastle refineries and one operating refinery in Hawaii; the smaller Par West Hawaii refinery was idled in March 2020.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $3.125 billion | $5.402 billion |
| Operating income (loss) | $(318.0) million | $148.0 million |
| Net income (loss) | $(409.1) million | $40.8 million |
| Diluted EPS | $(7.68) | $0.80 |
| Adjusted EBITDA (non-GAAP) | $(86.7) million | $258.8 million |
| Cash from operating activities | $(37.2) million | $105.6 million |
| Capital expenditures | $63.5 million | $83.9 million |
Cash and cash equivalents were $68.3 million at year-end, down from $126.0 million. Total current assets were $636.5 million and current liabilities were $878.7 million. Management reported liquidity of $107.9 million, including cash and access to financing arrangements, and said it expected available resources and operating cash flows to cover current capital, turnaround, working-capital, and debt-service needs for the next 12 months.
Year-end debt was $708.6 million net of unamortized discounts and financing costs ($731.5 million principal amount); interest expense and financing costs were $70.2 million. Debt included $48.7 million of 5.00% convertible notes due June 2021, $300 million of 7.75% secured notes due 2025, $228.1 million outstanding on Term Loan B, and $105 million of 12.875% secured notes issued in June 2020. The ABL revolver had no borrowings and a $39.8 million borrowing base at year-end.
Material changes versus the prior comparable period
- Revenue fell 42%, reflecting lower crude and refined-product prices and a 23% decline in refined-product sales volumes amid pandemic-related demand destruction.
- Refining adjusted gross margin dropped to $31.1 million from $401.7 million; refining reported a $331.8 million operating loss versus $93.8 million operating income. The Hawaii 3-1-2 Singapore crack spread averaged $3.15/barrel versus $10.80; Washington’s index averaged $11.44 versus $15.02, and Wyoming’s index averaged $17.80 versus $24.90.
- Retail operating income declined to $24.2 million from $49.2 million. Retail sales volumes fell 18%, while fuel margins rose 25%; retail adjusted gross margin increased modestly to $128.8 million.
- Logistics operating income declined to $35.0 million from $59.1 million, primarily due to lower Hawaii and Wyoming throughput and lower neighbor-island sales.
- The company recorded $85.8 million of goodwill and asset impairment charges, including $67.9 million of goodwill impairment and $17.9 million related to Par West. It also recorded a $45.3 million impairment of its Laramie Energy investment; the carrying value of that investment was reduced to zero.
- RIN expense was $107.2 million. The year-end gross environmental-credit obligation was $150.5 million, compared with $22.8 million a year earlier.
Outlook, management commentary, risks, and unusual items
- COVID-19 materially affected demand, especially in Hawaii, where visitor arrivals fell sharply and fuel demand weakened. Management said the recovery remained uncertain and could continue to materially affect results, liquidity, and cash flows.
- The company reduced throughput and discretionary spending, furloughed and later reduced some staff, deferred capital spending, and adjusted product output and marine logistics capacity. Turnarounds at Hawaii and Wyoming also reduced throughput.
- Management’s 2021 capital-expenditure and deferred-turnaround budget was $35–$45 million, primarily for a partial Tacoma turnaround, maintenance, and regulatory and safety projects. No earnings or margin guidance was provided.
- On February 23, 2021, after year-end, the company completed a sale-leaseback of 21 Hawaii retail properties for approximately $109.4 million; it expected a separate closing for one additional property. It used approximately $51.7 million of proceeds to repay property-related loans and expected to use remaining net proceeds for general corporate purposes. The lease term is 15 years, with up to four five-year renewal options.
- The J. Aron Hawaii supply-and-offtake agreement was due to expire May 31, 2021, with extension subject to mutual agreement; the company was evaluating extension or replacement options. The Washington intermediation agreement was extended after year-end through March 31, 2022.
- Material risks include volatile crack spreads and commodity prices, continued pandemic-related demand weakness, high leverage and refinancing needs, RIN price and compliance exposure, dependence on inventory-financing counterparties, and increasingly stringent environmental and climate regulation.
- Wyoming refinery remediation costs are uncertain for some conditions. The company had accrued $16.3 million for estimated remediation work and cited an estimated $11.6 million for a replacement wastewater treatment system. Two related bankruptcy-trust claims total approximately $22.4 million; the company accrued $0.5 million for claims deemed probable and estimable and said full-share settlement was remote.
- The company reported compliance with debt instruments at year-end. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether Hawaii travel and fuel demand recover sufficiently to improve refinery throughput and crack spreads, and whether Par West remains idle or is restarted.
- Cash generation, borrowing availability, debt maturities—particularly the 2021 convertible notes—and ongoing access to inventory-financing agreements.
- Actual 2021 RIN obligations, credit prices, and any changes to refinery exemptions or renewable-volume requirements.
- Sale-leaseback proceeds, continuing lease costs, and the effect of the transaction on liquidity and leverage.
- Potential additional environmental remediation costs and any outcome of the outstanding bankruptcy-related claims.