Par Pacific Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Par Pacific operates refining, retail and logistics businesses, with three refineries in Hawaii, Wyoming and Washington. Dollar figures below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2022 | Six months 2022 | Comparable 2021 |
|---|---|---|---|
| Revenue | $2,106.3 | $3,456.6 | Q2 $1,217.5; six months $2,106.2 |
| Operating income (loss) | $174.0 | $52.9 | Q2 $(84.5); six months $(129.2) |
| Net income (loss) | $149.1 | $12.1 | Q2 $(109.0); six months $(171.2) |
| Diluted earnings (loss) per share | $2.50 | $0.20 | Q2 $(1.84); six months $(3.01) |
| Adjusted EBITDA (non-GAAP) | $242.1 | $254.5 | Q2 $26.7; six months $40.4 |
- Q2 operating and net margins were approximately 8.3% and 7.1%; first-half margins were approximately 1.5% and 0.3%, respectively.
- Refining drove the improvement: Q2 refining operating income was $168.8 versus a $99.1 loss a year earlier. Logistics operating income was $15.9; Retail was $5.5, down from $12.7.
- Refining adjusted gross margin was $287.3 in Q2 and $350.0 for the first half. Management cited stronger crack spreads, partly offset by unfavorable Hawaii purchased-product differentials, realized derivatives and inventory-financing costs. These are non-GAAP measures.
- Operating cash flow was $27.7 for the first half, versus $1.8 in 2021. Investing cash outflow was $29.0, including $29.0 of capital expenditures; financing cash inflow was $75.3. Cash, cash equivalents and restricted cash totaled $190.2 at June 30, including $186.2 of unrestricted cash.
- Management reported liquidity of $285.8 and said available cash and capital resources were expected to cover current capital expenditures, working capital and debt service for the next 12 months.
- Debt carrying value was $519.9 ($531.7 principal); the company also had $1,189.4 of current inventory-financing obligations. The ABL revolver had no loans outstanding, with $44.8 of letters of credit and a borrowing base of approximately $142.5. Debt agreements were reported in compliance.
Changes versus prior periods
- Q2 revenue rose 73% and first-half revenue rose 64%, reflecting higher crude and refined-product prices and stronger crack spreads. First-half refining sales volume fell 4%, primarily due to the Washington refinery turnaround.
- The first-half 2022 net profit followed a first-quarter loss of $137.1 and Q2 profit of $149.1. Higher Q2 crack spreads and a favorable change in Hawaii FIFO benefit supported the rebound; higher RIN expenses, derivatives costs and purchased-product differentials were offsets.
- 2021 comparisons included a $63.9 gain from Hawaii sale-leaseback transactions ($64.4 gain on asset sales in the cash-flow statement). No comparable gain occurred in 2022. Retail first-half operating income also fell partly because of the prior-year sale-leaseback gain, higher rent, and current-period operating costs.
- Inventory-financing obligations increased from $737.7 at year-end 2021 to $1,189.4 at June 30, 2022, alongside higher inventory and receivables. Management cited higher commodity prices, increased Hawaii inventory and posted derivative collateral as working-capital demands.
- Long-term debt net of current maturities declined from $553.7 to $509.0. The company repurchased $5.0 principal of 7.75% notes and $36.9 principal of 12.875% notes during the first half, with premiums and extinguishment costs on the latter.
Outlook, commentary and risks
- No numerical earnings or operating guidance is provided. Management described recovering travel and fuel demand, but warned that inflation and higher interest rates could weaken consumer spending and demand. It cited ongoing uncertainty from COVID-19, the Russia-Ukraine conflict and volatile energy markets; Russian crude purchases for the Hawaii refinery were suspended in March 2022.
- Management is considering strategic alternatives for its 46% Laramie Energy investment, including changing the size of the investment. The investment carrying value was zero at June 30, and Laramie’s debt generally restricts cash distributions to owners.
- Commodity and refining-margin exposure is material: management estimated that a $1-per-barrel change in average gross refining margins, at Q2 throughput, would change annualized operating income by approximately $50.9. A $1 crude-price change was estimated to change derivative fair value and cost of revenues by about $2.7.
- Renewable Fuel Standard exposure remains important. The EPA denied the company’s pending 2019–2020 small-refinery exemption applications on June 3, 2022. Gross environmental-credit obligations were $460.9 at market value, with $160.4 of related RINs and other credits carried in inventory at cost or net realizable value.
- Environmental and legal contingencies include $15.3 accrued for well-understood Wyoming refinery remediation components, an estimated $11.6 cost for a proposed wastewater treatment system, and unresolved Hawaii tax matters. The company disputes a Hawaii free-trade-zone tax complaint and a $1.4 Washington tax assessment; it said unfavorable outcomes in these tax matters were neither probable nor reasonably estimable.
- Other risks include refining and fuel-demand regulation, rising labor and operating costs, derivatives and collateral needs, and uncertainty over remediation costs. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether the exceptionally strong Q2 refining margins and earnings persist, and how crack spreads, feedstock differentials and hedges affect subsequent results.
- How much of first-half cash generation is sustainable after working-capital movements, collateral postings, inventory financing and turnaround spending.
- Current availability and terms under the ABL, J. Aron and MLC facilities, and the effect of rising inventory-financing obligations on liquidity.
- The scale and timing of RIN and other environmental-credit obligations, including exposure to market-price changes and the denied exemption applications.
- Potential cash costs and outcomes of Wyoming environmental work, Hawaii and Washington tax matters, and the remaining Delta-related claims.
- Any updates to Laramie Energy strategic alternatives and the company’s stated 12-month liquidity assessment.