UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________________________________________________________________________________________
FORM 10-Q
________________________________________________________________________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to

Commission File No. 001-36550
________________________________________________________________________________________________________________________
PAR PACIFIC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________________________________________________________________
Delaware
84-1060803
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
825 Town & Country Lane, Suite 1500
 
Houston, Texas
77024
(Address of principal executive offices)
(Zip Code)
(281) 899-4800  
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ý     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
¨
 
Accelerated filer
ý
 
 
 
 
 
Non-accelerated filer
¨
 
Smaller reporting company
¨
 
 
 
 
 
 
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. Yes   ¨ No   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨     No   ý

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common stock, $0.01 par value
 
PARR
 
New York Stock Exchange

51,008,846 shares of Common Stock, $0.01 par value, were outstanding as of August 2, 2019 .
 



PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS



Page No.
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
The terms “Par,” “Company,” “we,” “our,” and “us” refer to Par Pacific Holdings, Inc. and its consolidated subsidiaries unless the context suggests otherwise.


PART I - FINANCIAL INFORMATION  
Item 1. FINANCIAL STATEMENTS
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
 
June 30, 2019
 
December 31, 2018
ASSETS
 

 
 

Current assets
 
 
 

Cash and cash equivalents
$
106,190

 
$
75,076

Restricted cash
2,447

 
743

Total cash, cash equivalents, and restricted cash
108,637

 
75,819

Trade accounts receivable
254,684

 
160,338

Inventories
573,879

 
322,065

Prepaid and other current assets
13,833

 
28,370

Total current assets
951,033

 
586,592

Property and equipment
 
 
 

Property, plant, and equipment
1,106,419

 
649,768

Less accumulated depreciation, depletion, and amortization
(146,251
)
 
(111,507
)
Property and equipment, net
960,168

 
538,261

Long-term assets
 
 
 

Operating lease assets
389,047

 
—

Investment in Laramie Energy, LLC
137,448

 
136,656

Intangible assets, net
22,617

 
23,947

Goodwill
194,705

 
153,397

Other long-term assets
17,392

 
21,881

Total assets
$
2,672,410

 
$
1,460,734

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 

Current liabilities
 
 
 

Current maturities of long-term debt
$
12,295

 
$
33

Obligations under inventory financing agreements
636,489

 
373,882

Accounts payable
146,264

 
54,787

Deferred revenue
8,079

 
6,681

Accrued taxes
32,211

 
17,256

Operating lease liabilities
59,707

 
—

Other accrued liabilities
79,148

 
54,562

Total current liabilities
974,193

 
507,201

Long-term liabilities
 
 
 

Long-term debt, net of current maturities
631,801

 
392,607

Common stock warrants
7,246

 
5,007

Finance lease liabilities
6,501

 
6,123

Operating lease liabilities
332,465

 
—

Other liabilities
60,641

 
37,467

Total liabilities
2,012,847

 
948,405

Commitments and contingencies (Note 13)


 


Stockholders’ equity
 
 


Preferred stock, $0.01 par value: 3,000,000 shares authorized, none issued
—

 
—

Common stock, $0.01 par value; 500,000,000 shares authorized at June 30, 2019 and December 31, 2018, 51,024,186 shares and 46,983,924 shares issued at June 30, 2019 and December 31, 2018, respectively
510

 
470

Additional paid-in capital
675,870

 
617,937

Accumulated deficit
(19,490
)
 
(108,751
)
Accumulated other comprehensive income
2,673

 
2,673

Total stockholders’ equity
659,563

 
512,329

Total liabilities and stockholders’ equity
$
2,672,410

 
$
1,460,734

 
See accompanying notes to the condensed consolidated financial statements.

1

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
1,409,409

 
$
856,396

 
$
2,600,744

 
$
1,621,835




 
 
 
 
 
 
Operating expenses
 

 
 

 
 
 
 
Cost of revenues (excluding depreciation)
1,251,842

 
747,924

 
2,312,574

 
1,409,823

Operating expense (excluding depreciation)
74,830

 
53,060

 
148,504

 
104,070

Depreciation, depletion, and amortization
21,919

 
12,775

 
42,876

 
25,812

General and administrative expense (excluding depreciation)
11,379

 
12,905

 
23,044

 
24,110

Acquisition and integration costs
818

 
749

 
3,702

 
1,381

Total operating expenses
1,360,788

 
827,413

 
2,530,700

 
1,565,196




 
 
 
 
 
 
Operating income
48,621

 
28,983

 
70,044

 
56,639




 
 
 
 
 
 
Other income (expense)
 

 
 

 
 
 
 
Interest expense and financing costs, net
(20,278
)
 
(10,544
)
 
(38,988
)
 
(18,921
)
Debt extinguishment and commitment costs
(3,690
)
 
—

 
(9,186
)
 
—

Other income, net
2,177

 
657

 
2,264

 
776

Change in value of common stock warrants
(957
)
 
(74
)
 
(2,239
)
 
671

Change in value of contingent consideration
—

 
—

 
—

 
(10,500
)
Equity earnings (losses) from Laramie Energy, LLC
491

 
(2,352
)
 
792

 
3,224

Total other income (expense), net
(22,257
)
 
(12,313
)
 
(47,357
)
 
(24,750
)



 
 
 
 
 
 
Income before income taxes
26,364

 
16,670

 
22,687

 
31,889

Income tax benefit  (expense)
1,805

 
(492
)
 
66,574

 
(526
)
Net income
$
28,169

 
$
16,178

 
$
89,261

 
$
31,363

 
 
 
 
 
 
 
 
Income per share


 


 
 
 
 
Basic
$
0.56

 
$
0.35

 
$
1.78

 
$
0.68

Diluted
$
0.56

 
$
0.35

 
$
1.75

 
$
0.68

Weighted-average number of shares outstanding
 

 
 

 
 
 
 
Basic
49,960

 
45,684

 
49,529

 
45,659

Diluted
50,074

 
45,723

 
55,580

 
45,700

 


 






See accompanying notes to the condensed consolidated financial statements.

2






PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net income
$
89,261

 
$
31,363

Adjustments to reconcile net income to cash provided by operating activities:
 

 
 

Depreciation, depletion, and amortization
42,876

 
25,812

Debt extinguishment and commitment costs
9,186

 
—

Non-cash interest expense
4,968

 
3,603

Change in value of common stock warrants
2,239

 
(671
)
Deferred taxes
(67,129
)
 
31

Stock-based compensation
3,198

 
3,103

Unrealized loss on derivative contracts
21,086

 
4,878

Equity earnings from Laramie Energy, LLC
(792
)
 
(3,224
)
Net changes in operating assets and liabilities:
 

 
 

Trade accounts receivable
(60,680
)
 
(10,604
)
Prepaid and other assets
12,029

 
(72,043
)
Inventories
(154,878
)
 
15,894

Deferred turnaround expenditures
(1,894
)
 
—

Obligations under inventory financing agreements
74,287

 
22,311

Accounts payable, other accrued liabilities, and operating lease assets and liabilities
50,480

 
10,874

Net cash provided by operating activities
24,237

 
31,327

Cash flows from investing activities:
 

 
 

Acquisitions of businesses, net of cash acquired
(274,291
)
 
(74,331
)
Proceeds from purchase price settlement related to asset acquisition
3,226

 
—

Capital expenditures
(41,404
)
 
(17,657
)
Other investing activities
188

 
797

Net cash used in investing activities
(312,281
)
 
(91,191
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
450,505

 
106,500

Repayments of borrowings
(180,541
)
 
(111,844
)
Net borrowings on deferred payment arrangements and receivable advances
71,447

 
30,213

Payment of deferred loan costs
(13,413
)
 
(72
)
Payments for debt extinguishment and commitment costs
(7,142
)
 
—

Other financing activities, net
6

 
(564
)
Net cash provided by financing activities
320,862

 
24,233

Net increase (decrease) in cash, cash equivalents, and restricted cash
32,818

 
(35,631
)
Cash, cash equivalents, and restricted cash at beginning of period
75,819

 
119,077

Cash, cash equivalents, and restricted cash at end of period
$
108,637

 
$
83,446

Supplemental cash flow information:
 

 
 

Net cash received (paid) for:
 
 
 
Interest
$
(26,740
)
 
$
(12,012
)
Taxes
(3,966
)
 
—

Non-cash investing and financing activities:
 

 
 

Accrued capital expenditures
$
8,085

 
$
2,145

Common stock issued for business combination
36,980

 
—

Common stock issued to repurchase convertible notes
30,055

 
—

 


See accompanying notes to the condensed consolidated financial statements.

3






PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Additional
 
 
 
Other
 
 
 
Common Stock
 
Paid-In
 
Accumulated
 
Comprehensive
 
Total
 
Shares
 
Amount
 
Capital
 
Deficit
 
Income
 
Equity
Balance, December 31, 2017
45,776

 
$
458

 
$
593,295

 
$
(148,178
)
 
$
2,144

 
$
447,719

Stock-based compensation
272

 
1

 
1,437

 
—

 
—

 
1,438

Purchase of common stock for retirement
(29
)
 
—

 
(543
)
 
—

 
—

 
(543
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
—

Net income
—

 
—

 
—

 
15,185

 
—

 
15,185

Balance, March 31, 2018
46,019

 
459

 
594,189

 
(132,993
)
 
2,144

 
463,799

Stock-based compensation
(8
)
 
1

 
1,663

 
—

 
—

 
1,664

Purchase of common stock for retirement
(3
)
 
—

 
(21
)
 
—

 
—

 
(21
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
—

Net income
—

 
—

 
—

 
16,178

 
—

 
16,178

Balance, June 30, 2018
46,008

 
$
460

 
$
595,831

 
$
(116,815
)
 
$
2,144

 
$
481,620


 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Additional
 
 
 
Other
 
 
 
Common Stock
 
Paid-In
 
Accumulated
 
Comprehensive
 
Total
 
Shares
 
Amount
 
Capital
 
Deficit
 
Income
 
Equity
Balance, December 31, 2018
46,984

 
$
470

 
$
617,937

 
$
(108,751
)
 
$
2,673

 
$
512,329

Issuance of common stock for business combination
2,364

 
23

 
36,957

 
—

 
—

 
36,980

Stock-based compensation
246

 
3

 
1,532

 
—

 
—

 
1,535

Purchase of common stock for retirement
(44
)
 
—

 
(734
)
 
—

 
—

 
(734
)
Net income
—

 
—

 
—

 
61,092

 
—

 
61,092

Balance, March 31, 2019
49,550

 
496

 
655,692

 
(47,659
)
 
2,673

 
611,202

Issuance of common stock for convertible notes repurchase, net (1)
1,449

 
14

 
17,775

 
—

 
—

 
17,789

Issuance of common stock for employee stock purchase plan
37

 
—

 
754

 
—

 
—

 
754

Stock-based compensation
(31
)
 
—

 
1,550

 
—

 
—

 
1,550

Purchase of common stock for retirement
(2
)
 
—

 
(20
)
 
—

 
—

 
(20
)
Exercise of stock options
21

 
—

 
119

 
—

 
—

 
119

Net income
—

 
—

 
—

 
28,169

 
—

 
28,169

Balance, June 30, 2019
51,024

 
$
510

 
$
675,870

 
$
(19,490
)
 
$
2,673

 
$
659,563

________________________________________
(1)
The issuance of common stock for the repurchase of a portion of our 5.00% Convertible Senior Notes in the three months ended June 30, 2019 is presented net of a $12.3 million write-off associated with the equity component of the repurchased notes.


See accompanying notes to the condensed consolidated financial statements.

4
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018




Note 1 — Overview
Par Pacific Holdings, Inc. and its wholly owned subsidiaries (“Par” or the “Company”) own and operate market-leading energy and infrastructure businesses. Our strategy is to acquire and develop businesses in logistically-complex markets. Currently, we operate in three primary business segments:
1) Refining - We own and operate three refineries with total throughput capacity of over 200 thousand barrels per day (“Mbpd”). Our co-located refinery in Kapolei, Hawaii, produces ultra-low sulfur diesel (“ULSD”) , gasoline, jet fuel, marine fuel, low sulfur fuel oil (“LSFO”), and other associated refined products primarily for consumption in Hawaii. Our refinery in Newcastle, Wyoming , produces gasoline, ULSD , jet fuel, and other associated refined products that are primarily marketed in Wyoming and South Dakota. Our refinery in Tacoma, Washington, acquired in January 2019, produces distillates, gasoline, asphalt, and other associated refined products primarily marketed in the Pacific Northwest.
2) Retail - Our retail outlets in Hawaii sell gasoline, diesel, and retail merchandise throughout the islands of Oahu, Maui, Hawaii, and Kauai. Our Hawaii retail network includes Hele and “ 76 ” branded retail sites, company-operated convenience stores, 7-Eleven operated convenience stores, other sites operated by third parties, and unattended cardlock stations. Through June 30, 2019 , we completed the rebranding of 25 of our 34 company-operated convenience stores in Hawaii to “nomnom,” a new proprietary brand. Our retail outlets in Washington and Idaho sell gasoline, diesel, and retail merchandise and operate under the “ Cenex® ” and “Zip Trip®” brand names.
3) Logistics - We operate an extensive multi-modal logistics network spanning the Pacific, the Northwest, and the Rockies. We own and operate terminals, pipelines, a single-point mooring (“SPM”), and trucking operations to distribute refined products throughout the islands of Oahu, Maui, Hawaii, Molokai, and Kauai. We own and operate a crude oil pipeline gathering system, a refined products pipeline, storage facilities, and loading racks in Wyoming and a jet fuel storage facility and pipeline that serve the Ellsworth Air Force Base in South Dakota. Beginning in January 2019, we own and operate logistics assets in Washington, including a marine terminal, a unit train-capable rail loading terminal, storage facilities, a truck rack, and a proprietary pipeline that serves McChord Air Force Base.
As of June 30, 2019 , we owned a 46.0% equity investment in Laramie Energy, LLC (“ Laramie Energy ”). Laramie Energy is focused on producing natural gas in Garfield, Mesa, and Rio Blanco Counties, Colorado.
Our Corporate and Other reportable segment primarily includes general and administrative costs.
Note 2 — Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of Par and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain amounts previously reported in our condensed consolidated financial statements for prior periods have been reclassified to conform with the current presentation.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. The condensed consolidated financial statements contained in this report include all material adjustments of a normal recurring nature that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the complete fiscal year or for any other period. The condensed consolidated balance sheet as of December 31, 2018 was derived from our audited consolidated financial statements as of that date. These condensed consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 .
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. Actual amounts could differ from these estimates.

5
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Restricted Cash
Restricted cash consists of cash not readily available for general purpose cash needs. Restricted cash relates to cash held at commercial banks to support letter of credit facilities and certain ongoing bankruptcy recovery trust claims.
Inventories
Commodity inventories, excluding commodity inventories at the Washington refinery, are stated at the lower of cost or net realizable value using the first-in, first-out accounting method (“FIFO”). Commodity inventories at the Washington refinery are stated at the lower of cost or net realizable value using the last-in, first-out (“LIFO”) inventory accounting method. We value merchandise along with spare parts, materials, and supplies at average cost. Our LIFO reserve was $10.6 million as of June 30, 2019 .
All of the crude oil utilized at the Hawaii refinery is financed by J. Aron & Company (“J.Aron”) under the Supply and Offtake Agreements as described in Note 8—Inventory Financing Agreements . The crude oil remains in the legal title of J. Aron and is stored in our storage tanks governed by a storage agreement. Legal title to the crude oil passes to us at the tank outlet. After processing, J. Aron takes title to the refined products stored in our storage tanks until they are sold to our retail locations or to third parties. We record the inventory owned by J. Aron on our behalf as inventory with a corresponding obligation on our balance sheet because we maintain the risk of loss until the refined products are sold to third parties and we are obligated to repurchase the inventory.
In connection with the consummation of the Washington Acquisition (as defined in Note 4—Acquisitions), we became a party to an intermediation arrangement (the “ Washington Refinery Intermediation Agreement ”) with Merrill Lynch Commodities, Inc. (“ MLC ”) as described in Note 8—Inventory Financing Agreements . Under this arrangement, U.S. Oil (as defined in Note 4—Acquisitions ) purchases crude oil supplied from third-party suppliers and MLC provides credit support for certain crude oil purchases. MLC ’s credit support can consist of either providing a payment guaranty, causing the issuance of a letter of credit from a third party issuing bank, or purchasing crude oil directly from third-parties on our behalf. U.S. Oil holds title to all crude oil and refined products inventories at all times and pledges such inventories, together with all receivables arising from the sales of same, exclusively to MLC .
Cost Classifications
Cost of revenues (excluding depreciation) includes the hydrocarbon-related costs of inventory sold, transportation costs of delivering product to customers, crude oil consumed in the refining process, costs to satisfy our Renewable Identification Numbers (“RINs”) obligations, and certain hydrocarbon fees and taxes. Cost of revenues (excluding depreciation) also includes the unrealized gains (losses) on derivatives and inventory valuation adjustments. Certain direct operating expenses related to our logistics segment are also included in Cost of revenues (excluding depreciation).
Operating expense (excluding depreciation) includes direct costs of labor, maintenance and services, energy and utility costs, property taxes, and environmental compliance costs as well as chemicals and catalysts and other direct operating expenses.
The following table summarizes depreciation and finance lease amortization expense excluded from each line item in our condensed consolidated statements of operations (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Cost of revenues
 
$
3,950

 
$
1,639

 
$
7,816

 
$
3,246

Operating expense
 
13,635

 
6,501

 
26,582

 
13,405

General and administrative expense
 
762

 
901

 
1,544

 
2,048

Recent Accounting Pronouncements
There have been no developments to recent accounting pronouncements, including the expected dates of adoption and estimated effects on our financial condition, results of operations, and cash flows, from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 .
Accounting Principles Adopted
On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) , as amended by other ASUs issued since February 2019 (“ASU 2016-02” or “ASC 842”), using the modified retrospective transition method.

6
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Under this optional transition method, information presented prior to January 1, 2019 has not been restated and continues to be reported under the accounting standards in effect for the period. There was no adjustment to our opening retained earnings as a result of the adoption of this ASU.
ASU 2016-02 requires lessees to recognize a right-of-use asset (“ROU asset”) and lease liability on the balance sheet for all rights and obligations created by leases. The new standard provided a number of optional practical expedients. We have elected:
•
the package of practical expedients, permitting us to carryforward our conclusions regarding lease identification, classification, and initial direct costs for contracts that commenced prior to the effective date;
•
the practical expedient pertaining to land easements, allowing us to account for existing land easements under our previous accounting policy;
•
the short-term lease exemption, which states that leases that are 12 months or less are exempt from balance sheet reporting; and
•
the practical expedient that allows us to combine lease and non-lease components.
ASC 842 had a material impact on our consolidated balance sheet; however, it did not materially impact our consolidated statement of operations or statement of cash flows. As a result of the adoption of ASC 842, we recorded ROU assets and lease liabilities related to operating leases of $347 million and $349 million , respectively. Our accounting for finance leases remained substantially unchanged. Additionally, we acquired operating lease assets and lease liabilities of $62 million in connection with the Washington Acquisition (as defined in Note 4—Acquisitions). Please read Note 12—Leases for further disclosures and information.
On January 1, 2019, we adopted ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ( “ ASU 2018-02”) and elected not to reclassify to retained earnings the stranded effects in Accumulated Other Comprehensive Income related to the changes in the statutory tax rate that were charged to income from continuing operations under the requirements of Financial Accounting Standards Board (“FASB”) ASC Topic 740, “Income Taxes.” The adoption of ASU 2018-02 did not have a material impact on our financial condition, results of operations, and cash flows.
Note 3 — Investment in Laramie Energy, LLC
As of June 30, 2019 , we had a 46.0% ownership interest in Laramie Energy . Laramie Energy is focused on producing natural gas in Garfield, Mesa, and Rio Blanco Counties, Colorado.
Laramie Energy has a $400 million revolving credit facility with a borrowing base currently set at $240 million that is secured by a lien on its natural gas and crude oil properties and related assets. As of June 30, 2019 , the balance outstanding on the revolving credit facility was approximately $201.0 million . We are guarantors of Laramie Energy ’s credit facility, with recourse limited to the pledge of our equity interest of our wholly owned subsidiary, Par Piceance Energy Equity, LLC. Under the terms of its credit facility, Laramie Energy is generally prohibited from making future cash distributions to its owners, including us.
During the second quarter of 2019, we conducted an impairment evaluation of our investment in Laramie Energy as a result of the significant decline in natural gas prices during the latter part of the second quarter of 2019 and determined that the estimated fair value of our investment in Laramie Energy was in the range of $100 million to $123 million compared to a carrying value of $137.4 million . The range was determined using primarily a discounted cash flow approach using pricing forecasts as of quarter end through 2023 and a 5 year historical average for subsequent years. As part of our evaluation, we considered the duration of the decline in fair value, the likelihood that natural gas prices will recover in the near term, the severity of the current decline in natural gas prices and historical pricing trends. We intend and are able to hold our investment in Laramie Energy through the recovery of natural gas prices. Based on these factors, we concluded that the excess of the carrying value of our investment in Laramie Energy over its fair value was not other than temporary and that no impairment loss should be recorded on our statement of operations for the three months ended June 30, 2019. However, sustained downward pressure on natural gas prices could potentially be an indicator of a future other-than-temporary impairment of our investment in Laramie Energy.  We will continue to closely monitor these market factors and their effect on the value of our investment in Laramie Energy.


7
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



The change in our equity investment in Laramie Energy is as follows (in thousands):
 
Six Months Ended June 30, 2019
Beginning balance
$
136,656

Equity losses from Laramie Energy
(2,553
)
Accretion of basis difference
3,345

Ending balance
$
137,448

Summarized financial information for Laramie Energy is as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
Current assets
$
21,028

 
$
28,569

Non-current assets
769,913

 
788,515

Current liabilities
33,986

 
41,681

Non-current liabilities
280,047

 
293,084

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Natural gas and oil revenues
$
43,270

 
$
46,750

 
$
111,194

 
$
93,431

Income (loss) from operations
(8,205
)
 
(554
)
 
5,538

 
5,490

Net loss
(2,570
)
 
(8,846
)
 
(5,553
)
 
(1,556
)
Laramie Energy ’s net loss for the three and six months ended June 30, 2019 includes $21.0 million and $42.4 million of depreciation, depletion, and amortization (“DD&A”) and $8.4 million and $11.1 million of unrealized gains on derivative instruments, respectively. Laramie Energy ’s net loss  for the three and six months ended June 30, 2018 includes $17.1 million and $32.0 million of DD&A and $8.1 million and $3.5 million of unrealized losses on derivative instruments, respectively.
At June 30, 2019 and December 31, 2018 , our equity in the underlying net assets of Laramie Energy exceeded the carrying value of our investment by approximately $81.9 million and $85.2 million , respectively. This difference arose primarily due to lack of control and marketability discounts and an other-than-temporary impairment of our equity investment in Laramie Energy . We attributed this difference to natural gas and crude oil properties and are amortizing the difference over 15 years based on the estimated timing of production of proved reserves.
Note 4 — Acquisitions
Washington Acquisition
On November 26, 2018 , we entered into a Purchase and Sale Agreement to acquire U.S. Oil & Refining Co. and certain affiliated entities (collectively, “ U.S. Oil ”), a privately-held downstream business, for  $358 million  plus net working capital (the “ Washington Acquisition ”). The Washington Acquisition includes a 42 Mbpd refinery, a marine terminal, a unit train-capable rail loading terminal, and 2.9 MMbbls of refined product and crude oil storage. The refinery and associated logistics system are strategically located in Tacoma, Washington, and currently serve the Pacific Northwest market. On January 11, 2019 , we completed the  Washington Acquisition for a total purchase price of $327.4 million , including acquired working capital, consisting of cash consideration of $290.4 million and approximately 2.4 million shares of Par’s common stock with a fair value of $37.0 million issued to the seller of U.S. Oil. The cash consideration was funded in part through cash on hand, proceeds from borrowings under a new term loan facility entered into with Goldman Sachs Bank USA, as administrative agent, of $250.0 million (the “ Term Loan B ”) and proceeds from borrowings under a term loan from the Bank of Hawaii of $45.0 million (the “ Par Pacific Term Loan ”). Please read Note 9—Debt for further information on the Term Loan B and Par Pacific Term Loan . In January 2019, we incurred $5.4 million of commitment fees associated with the funding of the Washington Acquisition . Such commitment fees are presented as Debt extinguishment and commitment costs on our condensed consolidated statements of operations for the six months ended June 30, 2019 .
In connection with the consummation of the Washington Acquisition , we assumed the Washington Refinery Intermediation Agreement with MLC that provides a structured financing arrangement based on U.S. Oil ’s crude oil and refined products inventories

8
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



and associated accounts receivable. Please read Note 8—Inventory Financing Agreements for further information on the Washington Refinery Intermediation Agreement .
We accounted for the  Washington Acquisition  as a business combination whereby the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values on the date of the acquisition. Goodwill recognized in the transaction was attributable to opportunities expected to arise from combining our operations with those of the Washington refinery and the utilization of our net operating loss carryforwards, as well as other intangible assets that do not qualify for separate recognition. Goodwill recognized as a result of the Washington Acquisition is not expected to be deductible for income tax reporting purposes.
A summary of the preliminary estimated fair value of the assets acquired and liabilities assumed is as follows (in thousands):
Cash
$
16,146

Accounts receivable
36,384

Inventories
96,936

Prepaid and other assets
5,320

Property, plant, and equipment
412,766

Operating lease assets
62,337

Goodwill (1)
41,308

Total assets
671,197

Obligations under inventory financing agreements
(116,873
)
Accounts payable
(55,444
)
Current operating lease obligations
(21,571
)
Other current liabilities
(18,411
)
Long-term operating lease obligations
(40,766
)
Deferred tax liability
(89,909
)
Other non-current liabilities
(804
)
Total liabilities
(343,778
)
Total
$
327,419

______________________________________________
(1) We allocated $29.7 million and $11.6 million of total assets to our refining and logistics segments, respectively.
We have recorded a preliminary estimate of the fair value of the assets acquired and liabilities assumed and expect to finalize the purchase price allocation during the remainder of 2019. The primary areas of the purchase price allocation that are not yet finalized relate to property, plant, and equipment, goodwill, and income taxes. During the three months ended June 30, 2019 , the purchase price allocation was adjusted to record an increase in the property, plant, and equipment valuation of $2.1 million , a decrease in the deferred tax liability of $5.9 million , and a net decrease in working capital adjustments of $2.8 million . Goodwill decreased $5.2 million as a result of these adjusting entries. We incurred $2.2 million of acquisition costs related to the Washington Acquisition for the six months ended June 30, 2019 . These costs are included in Acquisition and integration costs  on our condensed consolidated statement of operations.
The results of operations of U.S. Oil were included in our results beginning on January 11, 2019 . For the three and six months ended June 30, 2019 , our results of operations included revenues of $309.8 million and $555.6 million and profit before tax of $23.2 million and $20.1 million related to U.S. Oil , respectively. The following unaudited pro forma financial information presents our consolidated revenues and net income (loss) as if the Washington Acquisition had been completed on January 1, 2018 (in thousands except per share information):

9
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



 
Six Months Ended June 30,
 
2019
 
2018
Revenues
$
2,628,652

 
$
2,269,578

Net income
77,704

 
15,280

 
 
 
 
Income per share
 
 
 
Basic
$
1.55

 
$
0.31

Diluted
$
1.54

 
$
0.31

Hawaii Refinery Expansion
On August 29, 2018 , we entered into a Topping Unit Purchase Agreement with IES Downstream, LLC (“ IES ”) to purchase certain of IES ’s refining units and related assets in addition to certain hydrocarbon and non-hydrocarbon inventory (collectively, the “ Hawaii Refinery Expansion ”). On December 19, 2018 , we completed the asset purchase for total consideration of approximately $66.9 million , net of a $4.3 million receivable related to net working capital adjustments. The purchase price consisted of $47.6 million in cash and approximately 1.1 million shares of our common stock with a fair value of $19.3 million .
We accounted for the Hawaii Refinery Expansion as an asset acquisition whereby the purchase price was allocated entirely to the assets acquired. Of the total purchase price of $66.9 million , $45.2 million was allocated to property, plant, and equipment, $4.3 million to non-hydrocarbon inventory, and $17.4 million to hydrocarbon inventory. With the completion of the Hawaii Refinery Expansion , the Hawaii refinery operations now have two facility locations which are approximately two miles from one another: Par East, our legacy refinery assets, and Par West, the recently-acquired assets.
Northwest Retail Acquisition
On January 9, 2018 , we entered into an Asset Purchase Agreement with CHS, Inc. to acquire  twenty-one (21) owned retail gasoline, convenience store facilities and  twelve (12) leased retail gasoline, convenience store facilities, all at various locations in Washington and Idaho (collectively, “ Northwest Retail ”). On March 23, 2018 , we completed the acquisition for cash consideration of approximately $74.5 million (the “ Northwest Retail Acquisition ”).
As part of the Northwest Retail Acquisition , Par and CHS, Inc. entered into a multi-year branded petroleum marketing agreement for the continued supply of Cenex® -branded refined products to the acquired Cenex® Zip Trip convenience stores. In addition, the parties also entered into a multi-year supply agreement pursuant to which Par will supply refined products to CHS, Inc. within the Rocky Mountain and Pacific Northwest markets.
We accounted for the acquisition of Northwest Retail as a business combination whereby the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. Goodwill recognized in the transaction was attributable to opportunities expected to arise from combining our operations with Northwest Retail and utilization of our net operating loss carryforwards, as well as intangible assets that do not qualify for separate recognition. Goodwill recognized as a result of the Northwest Retail Acquisition is expected to be deductible for income tax reporting purposes.
A summary of the fair value of the assets acquired and liabilities assumed is as follows (in thousands):
Cash
$
200

Inventories
4,138

Prepaid and other current assets
243

Property, plant, and equipment
30,230

Goodwill (1)
46,210

Accounts payable and other current liabilities
(759
)
Long-term capital lease obligations
(5,244
)
Other non-current liabilities
(487
)
Total
$
74,531

________________________________________________________
(1) The total goodwill balance of $46.2 million was allocated to our retail segment.

10
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



As of December 31, 2018, we finalized the Northwest Retail Acquisition purchase price allocation. We incurred $0.6 million of acquisition costs related to the Northwest Retail Acquisition for the six months ended June 30, 2018. These costs are included in Acquisition and integration costs  on our condensed consolidated statement of operations. No such costs were incurred during the three months ended June 30, 2018.
Note 5 — Revenue Recognition
As of June 30, 2019 and December 31, 2018 , receivables from contracts with customers were  $236.5 million and  $148.4 million , respectively. Our refining segment recognizes deferred revenues when cash payments are received in advance of delivery of products to the customer. Deferred revenue was $8.1 million and $6.7 million as of June 30, 2019 and December 31, 2018 , respectively.
The following table provides information about disaggregated revenue by major product line and includes a reconciliation of the disaggregated revenue with reportable segments (in thousands):
Three Months Ended June 30, 2019
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
372,352

 
$
—

 
$
86,248

Distillates (1)
 
646,907

 
—

 
10,547

Other refined products (2)
 
327,939

 
—

 
—

Merchandise
 
—

 
—

 
23,469

Transportation and terminalling services
 
—

 
50,146

 
—

Other revenue
 
359

 
—

 
485

Total segment revenues (3)
 
$
1,347,557

 
$
50,146

 
$
120,749

Three Months Ended June 30, 2018
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
255,870

 
$
—

 
$
84,754

Distillates (1)
 
453,968

 
—

 
11,125

Other refined products (2)
 
90,570

 
—

 
—

Merchandise
 
—

 
—

 
23,812

Transportation and terminalling services
 
—

 
31,289

 
—

Total segment revenues (3)
 
$
800,408

 
$
31,289

 
$
119,691

Six Months Ended June 30, 2019
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
660,552

 
$
—

 
$
156,011

Distillates (1)
 
1,202,799

 
—

 
19,556

Other refined products (2)
 
629,385

 
—

 
—

Merchandise
 
—

 
—

 
44,078

Transportation and terminalling services
 
—

 
95,355

 
—

Other revenue
 
885

 
—

 
935

Total segment revenues (3)
 
$
2,493,621

 
$
95,355

 
$
220,580


11
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Six Months Ended June 30, 2018
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
495,131

 
$
—

 
$
142,956

Distillates (1)
 
852,497

 
—

 
18,121

Other refined products (2)
 
193,043

 
—

 
—

Merchandise
 
—

 
—

 
37,206

Transportation and terminalling services
 
—

 
64,356

 
—

Total segment revenues (3)
 
$
1,540,671

 
$
64,356

 
$
198,283

_______________________________________________________
(1)
Distillates primarily include diesel and jet fuel.
(2)
Other refined products include fuel oil, gas oil, asphalt, and naphtha.
(3)
Refer to Note 17—Segment Information for the reconciliation of segment revenues to total consolidated revenues.
Note 6 — Inventories
Inventories at June 30, 2019 consisted of the following (in thousands):
 
Titled Inventory
 
Supply and Offtake Agreements (1)
 
Total
Crude oil and feedstocks
$
71,058

 
$
173,232

 
$
244,290

Refined products and blendstock
121,955

 
158,707

 
280,662

Warehouse stock and other (2)
48,927

 
—

 
48,927

Total
$
241,940

 
$
331,939

 
$
573,879

Inventories at December 31, 2018 consisted of the following (in thousands):
 
Titled Inventory
 
Supply and Offtake Agreements   (1)
 
Total
Crude oil and feedstocks
$
7,000

 
$
117,877

 
$
124,877

Refined products and blendstock
62,401

 
100,175

 
162,576

Warehouse stock and other (2)
34,612

 
—

 
34,612

Total
$
104,013

 
$
218,052

 
$
322,065

________________________________________________________
(1)
Please read Note 8—Inventory Financing Agreements for further information.
(2)
Includes $4.8 million and $5.0 million of RINs and environmental credits as of June 30, 2019 and December 31, 2018 , respectively.
As of June 30, 2019 and December 31, 2018 , there was a $13.4 million and $3.8 million reserve for the lower of cost or net realizable value of inventory, respectively. Our LIFO inventory reserve was $10.6 million as of June 30, 2019 .

12
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Note 7 — Prepaid and Other Current Assets
Prepaid and other current assets at June 30, 2019 and December 31, 2018 consisted of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
Collateral posted with broker for derivative instruments (1)
$
2,656

 
$
2,759

Prepaid insurance
3,791

 
7,727

Deferred financing costs
335

 
—

Derivative assets
1,730

 
5,164

Other
5,321

 
12,720

Total
$
13,833

 
$
28,370

_________________________________________________________
(1)
Our cash margin that is required as collateral deposits on our commodity derivatives cannot be offset against the fair value of open contracts except in the event of default. Please read Note 10—Derivatives for further information.
Note 8 — Inventory Financing Agreements
Supply and Offtake Agreements
On June 1, 2015, we entered into several agreements with J. Aron to support the operations of our Hawaii refinery (the “Supply and Offtake Agreements”). The Supply and Offtake Agreements mature on May 31, 2021 and have a one -year extension option upon mutual agreement of the parties. Under the Supply and Offtake Agreements, J. Aron may enter into agreements with third parties whereby J. Aron will remit payments to these third parties for refinery procurement contracts for which we will become immediately obligated to reimburse J. Aron. As of June 30, 2019 , we had no obligations due to J. Aron under this contractual undertakings agreement. On December 5, 2018 , we amended the Supply and Offtake Agreements to account for additional processing capacity expected to be provided through the Hawaii Refinery Expansion . The amendment to the Supply and Offtake Agreements also (i) required us to increase our margin requirements by an aggregate of $2.5 million by making certain additional margin payments on December 19, 2018 , March 1, 2019 , and June 3, 2019 , and (ii) only allows dividends, payments, or other distributions with respect to any equity interests in Par Hawaii Refining, LLC ("PHR") in limited and restricted circumstances.
During the term of the Supply and Offtake Agreements, J. Aron and we will identify mutually acceptable contracts for the purchase of crude oil from third parties. Per the Supply and Offtake Agreements, J. Aron will provide up to 150 Mbpd per day of crude oil to our Hawaii refinery. Additionally, we agreed to sell and J. Aron agreed to buy, at market prices, refined products produced at our Hawaii refinery. We will then repurchase the refined products from J. Aron prior to selling the refined products to our retail operations or to third parties. The agreements also provide for the lease of crude oil and certain refined product storage facilities to J. Aron. Following the expiration or termination of the Supply and Offtake Agreements, we are obligated to purchase the crude oil and refined product inventories then owned by J. Aron and located at the leased storage facilities at then-current market prices.
Though title to the crude oil and certain refined product inventories resides with J. Aron, the Supply and Offtake Agreements are accounted for similar to a product financing arrangement; therefore, the crude oil and refined products inventories will continue to be included on our condensed consolidated balance sheets until processed and sold to a third party. Each reporting period, we record a liability in an amount equal to the amount we expect to pay to repurchase the inventory held by J. Aron based on current market prices.
For the three and six months ended June 30, 2019 , we incurred approximately $7.7 million and $13.0 million in handling fees related to the Supply and Offtake Agreements, respectively, which are included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. For the three and six months ended June 30, 2018 , we incurred approximately $6.0 million and $10.8 million in handling fees related to the Supply and Offtake Agreements, respectively. For the three and six months ended June 30, 2019 , Interest expense and financing costs, net , on our condensed consolidated statements of operations includes approximately $1.4 million and $3.1 million of expenses related to the Supply and Offtake Agreements, respectively. For the three and six months ended June 30, 2018 , Interest expense and financing costs, net on our condensed consolidated statements of operations includes approximately $1.3 million and $2.0 million of expenses related to the Supply and Offtake Agreements, respectively.
The Supply and Offtake Agreements also include a deferred payment arrangement (“Deferred Payment Arrangement”) whereby we can defer payments owed under the agreements up to the lesser of $165 million or 85% of the eligible accounts

13
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



receivable and inventory. Upon execution of the Supply and Offtake Agreements, we paid J. Aron a deferral arrangement fee of $1.3 million . The deferred amounts under the Deferred Payment Arrangement bear interest at a rate equal to three -month LIBOR plus 3.50% per annum. We also agreed to pay a deferred payment availability fee equal to 0.75% of the unused capacity under the Deferred Payment Arrangement. Amounts outstanding under the Deferred Payment Arrangement are included in Obligations under inventory financing agreements on our condensed consolidated balance sheets. Changes in the amount outstanding under the Deferred Payment Arrangement are included within Cash flows from financing activities on the condensed consolidated statements of cash flows. As of June 30, 2019 and December 31, 2018 , the capacity of the Deferred Payment Arrangement was $142.0 million and $77.4 million , respectively. As of June 30, 2019 and December 31, 2018 , we had $126.9 million and $68.4 million outstanding, respectively, under the Deferred Payment Arrangements.
Under the Supply and Offtake Agreements, we pay or receive certain fees from J. Aron based on changes in market prices over time. In February 2016, we fixed the market fee for the period from December 1, 2016 through May 31, 2018 for $14.6 million to be settled in eighteen equal monthly payments. In 2017, we fixed the market fee for the period from June 1, 2018 through May 2021 for an additional $2.2 million . The receivable from J. Aron was recorded as a reduction to our Obligations under inventory financing agreements pursuant to our Master Netting Agreement. As of June 30, 2019 and December 31, 2018 , the receivable was $1.0 million and $2.5 million , respectively.
Washington Refinery Intermediation Agreement
In connection with the consummation of the Washington Acquisition , we became a party to the Washington Refinery Intermediation Agreement with MLC that provides a structured financing arrangement based on U.S. Oil ’s crude oil and refined products inventories and associated accounts receivable. Under this arrangement, U.S. Oil purchases crude oil supplied from third-party suppliers and MLC provides credit support for such crude oil purchases. MLC ’s credit support can consist of either providing a payment guaranty, causing the issuance of a letter of credit from a third-party issuing bank, or purchasing crude oil directly from third parties on our behalf. U.S. Oil holds title to all crude oil and refined products inventories at all times and pledges such inventories, together with all receivables arising from the sales of same, exclusively to MLC . The Washington Refinery Intermediation Agreement expires on December 31, 2019 .
During the remaining term of the Washington Refinery Intermediation Agreement , MLC will make receivable advances to U.S. Oil based on an advance rate of 95% of eligible receivables, up to a total receivables advance maximum of $90.0 million (the “ MLC receivable advances ”), and additional advances based on crude oil and products inventories. Changes in the amount outstanding under the MLC receivable advances are included within Cash flows from financing activities on the condensed consolidated statements of cash flows. The MLC receivable advances bear interest at a rate equal to three -month LIBOR plus 3.25% per annum. We also agreed to pay an availability fee equal to 1.50% of the unused capacity under the MLC receivable advances . As of June 30, 2019 , our outstanding balance under MLC receivable advances was equal to our borrowing base of $62.5 million . Additionally, as of June 30, 2019 , we had approximately $65.9 million in letters of credit outstanding through MLC ’s credit support.
For the three and six months ended June 30, 2019 , we incurred approximately $0.9 million and $1.7 million in handling fees, respectively, related to the Washington Refinery Intermediation Agreement , which are included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. For the three and six months ended June 30, 2019 , Interest expense and financing costs, net on our condensed consolidated statements of operations includes approximately $1.5 million and $2.8 million of expenses, respectively, related to the Washington Refinery Intermediation Agreement .
The Supply and Offtake Agreements and the Washington Refinery Intermediation Agreement also provide us with the ability to economically hedge price risk on our inventories and crude oil purchases. Please read Note 10—Derivatives for further information.
Note 9 — Debt
The following table summarizes our outstanding debt (in thousands):
 
June 30, 2019
 
December 31, 2018
5.00% Convertible Senior Notes due 2021
$
79,895

 
$
115,000

7.75% Senior Secured Notes due 2025
300,000

 
300,000

ABL Credit Facility
—

 
—

Mid Pac Term Loan
1,449

 
1,466

Term Loan B
246,875

 
—

Retail Property Term Loan
44,754

 
—

Principal amount of long-term debt
672,973

 
416,466

Less: unamortized discount and deferred financing costs
(28,877
)
 
(23,826
)
Total debt, net of unamortized discount and deferred financing costs
644,096

 
392,640

Less: current maturities
(12,295
)
 
(33
)
Long-term debt, net of current maturities
$
631,801

 
$
392,607

Additionally, as of June 30, 2019 and December 31, 2018 , we had approximately $0.1 million and $13.5 million in letters of credit outstanding under the ABL Credit Facility , respectively. As of June 30, 2019 , we also had $3.7 million in cash-collateralized letters of credit and surety bonds outstanding.
Under the ABL Credit Facility , the indenture governing the 7.75% Senior Secured Notes , and the Term Loan B Facility , our subsidiaries are restricted from paying dividends or making other equity distributions, subject to certain exceptions.
7.75% Senior Secured Notes Due 2025
On December 21, 2017 , Par Petroleum, LLC and Par Petroleum Finance Corp. (collectively, the “Issuers”), both our wholly owned subsidiaries, completed the issuance and sale of $300 million in aggregate principal amount of 7.75% Senior Secured Notes in a private placement under Rule 144A and Regulation S of the Securities Act of 1933, as amended. The net proceeds of $289.2 million (net of financing costs and original issue discount of 1% ) from the sale were used to repay our previous credit facilities and the forward sale agreement with J. Aron and for general corporate purposes.
The 7.75% Senior Secured Notes bear interest at a rate of 7.750% per year (payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2018) and will mature on December 15, 2025 .
ABL Credit Facility
On December 21, 2017 , in connection with the issuance of the 7.75% Senior Secured Notes , Par Petroleum, LLC , Par Hawaii Inc., Mid Pac Petroleum, LLC (“Mid Pac”), HIE Retail, LLC, Hermes Consolidated, LLC, and Wyoming Pipeline Company (collectively, the “ ABL Borrowers ”), entered into a Loan and Security Agreement dated as of December 21, 2017 (the “ ABL Credit Facility ”) with certain lenders and Bank of America, N.A., as administrative agent and collateral agent. The ABL Credit Facility

14
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



provides for a revolving credit facility that provides for revolving loans and for the issuance of letters of credit (the “ ABL Revolver ”). On July 24, 2018 , we amended the ABL Credit Facility to increase the maximum principal amount at any time outstanding of the ABL Revolver by $10 million to $85 million , subject to a borrowing base. As of June 30, 2019 , the ABL Revolver had no outstanding balance and a borrowing base of approximately $53.7 million and the ABL Credit Facility had $0.1 million in letters of credit outstanding.
5.00% Convertible Senior Notes Due 2021
As of June 30, 2019 , the outstanding principal amount of the 5.00% Convertible Senior Notes was $79.9 million , the unamortized discount and deferred financing cost was $8.3 million , and the carrying amount of the liability component was $71.6 million . During May and June 2019, we entered into privately negotiated exchange agreements with a limited number of holders (the “Noteholders”) to repurchase $35.1 million in aggregate principal amount of the 5.00% Convertible Senior Notes held by the Noteholders for an aggregate of $16.2 million in cash and approximately 1.4 million shares of Par’s common stock with a fair value of $30.1 million . We recognized a loss of approximately $3.7 million related to the extinguishment of the repurchased 5.00% Convertible Senior Notes in the three months ended June 30, 2019 .
Term Loan B Facility
On January 11, 2019 , Par Petroleum, LLC and Par Petroleum Finance Corp. entered into a new term loan facility with Goldman Sachs Bank USA, as administrative agent, and the lenders party thereto from time to time (the “ Term Loan B Facility ”). Pursuant to the Term Loan B Facility , the lenders made a term loan to the borrowers in the amount of $250.0 million (“ Term Loan B ”) on the closing date. The net proceeds from Term Loan B totaled $228.9 million after deducting the original issue discount, deferred financing costs, and commitment and other fees.
Loans under Term Loan B bear interest at a rate per annum equal to Adjusted LIBOR (as defined in the Term Loan B Facility ) plus an applicable margin of 6.75% or at a rate per annum equal to Alternate Base Rate (as defined in the Term Loan B Facility ) plus an applicable margin of 5.75% . In addition to the quarterly interest payments, Term Loan B requires quarterly principal payments of $3.1 million . Term Loan B matures on January 11, 2026 .
The obligations of the borrowers under the Term Loan B Facility are guaranteed by Par Petroleum, LLC ’s and Par Petroleum Finance Corp. ’s existing and future direct or indirect domestic subsidiaries and by the Company, with respect to principal and interest only. The Term Loan B Facility and the 7.75% Senior Secured Notes are secured on a pari passu basis by first priority liens (subject to the relative priority of permitted liens) on substantially all of the property and assets of Par Petroleum, LLC , Par Petroleum Finance Corp. , and their subsidiary guarantors, but excluding certain property which is collateral under the ABL Credit Facility , the Supply and Offtake Agreements, and the Washington Refinery Intermediation Agreement .
Par Pacific Term Loan Agreement
On January 9, 2019 , we entered into a loan agreement (the “ Par Pacific Term Loan Agreement ”) with Bank of Hawaii (“BOH”). Pursuant to the Par Pacific Term Loan Agreement , BOH made a loan to the Company in the amount of $45.0 million (the “ Par Pacific Term Loan ”).
During the term of the Par Pacific Term Loan , the interest payments were due monthly and were based on the outstanding principal balance multiplied by a floating rate equal to 3.50% above the applicable LIBOR rate (as defined in the Par Pacific Term Loan Agreement ) subject to an increased default interest rate in the event of a default. The Par Pacific Term Loan Agreement was scheduled to mature on July 9, 2019 . We terminated and repaid all amounts outstanding under the Par Pacific Term Loan Agreement on March 29, 2019 using the proceeds of the Retail Property Term Loan (as defined below). We recognized approximately $0.1 million of debt extinguishment costs related to the unamortized deferred financing costs associated with the Par Pacific Term Loan Agreement in the six months ended June 30, 2019 .
Retail Property Term Loan
On March 29, 2019 , Par Pacific Hawaii Property Company, LLC (“ Par Property LLC ”), our wholly owned subsidiary, entered into a term loan agreement (the “ Retail Property Term Loan ”) with BOH, which provided a term loan in the principal amount of $45.0 million . The proceeds from the Retail Property Term Loan were used to repay and terminate the Par Pacific Term Loan Agreement .
The Retail Property Term Loan is guaranteed by Par and secured by a lien on substantially all of the assets of Par Property LLC , including a mortgage lien on 21 retail properties in Hawaii (the “ Portfolio Properties ”). Certain covenants require us to maintain a loan-to-appraisal value of the Portfolio Properties ratio of not greater than 75% and an annual debt yield of at least 9% . Par is also subject to a minimum liquidity covenant measured on the last day of each fiscal quarter.

15
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



The Retail Property Term Loan bears interest based on a floating rate equal to the applicable LIBOR for a one-month interest period plus 1.5% . Principal and interest payments are payable monthly based on a 20 -year amortization schedule, principal prepayments are allowed subject to applicable prepayment penalties, and the remaining unpaid principal, plus any unpaid interest or other charges, is due on April 1, 2024 , the maturity date of the Retail Property Term Loan .
Cross Default Provisions
Included within each of our debt agreements are affirmative and negative covenants, and customary cross default provisions, that require the repayment of amounts outstanding on demand unless the triggering payment default or acceleration is remedied, rescinded, or waived. As of June 30, 2019 , we were in compliance with all of our debt agreements.
Guarantors
In connection with our shelf registration statement on Form S-3, which was filed with the Securities and Exchange Commission (“SEC”) on February 6, 2019 and declared effective on February 15, 2019 (“Registration Statement”), we may sell non-convertible debt securities and other securities in one or more offerings with an aggregate initial offering price of up to $750.0 million . Any non-convertible debt securities issued under the Registration Statement may be fully and unconditionally guaranteed (except for customary release provisions), on a joint and several basis, by some or all of our subsidiaries, other than subsidiaries that are “minor” within the meaning of Rule 3-10 of Regulation S-X (the “Guarantor Subsidiaries”). We have no “independent assets or operations” within the meaning of Rule 3-10 of Regulation S-X and certain of the Guarantor Subsidiaries may be subject to restrictions on their ability to distribute funds to us, whether by cash dividends, loans, or advances.
Note 10 — Derivatives
Commodity Derivatives
We utilize commodity derivative contracts to manage our price exposure in our inventory positions, future purchases of crude oil, future purchases and sales of refined products, and crude oil consumption in our refining process. The derivative contracts that we execute to manage our price risk include exchange traded futures, options, and over-the-counter (“OTC”) swaps. Our futures, options, and OTC swaps are marked-to-market and changes in the fair value of these contracts are recognized within Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations.
We are obligated to repurchase the crude oil and refined products from J. Aron at the termination of the Supply and Offtake Agreements. Our Washington Refinery Intermediation Agreement contains forward purchase obligations for certain volumes of crude and refined products that are required to be settled at market prices on a monthly basis. We have determined that these obligations under the Supply and Offtake Agreements and Washington Refinery Intermediation Agreement contain embedded derivatives. As such, we have accounted for these embedded derivatives at fair value with changes in the fair value recorded in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. We are required under the Supply and Offtake Agreements to hedge the time spread between the period of crude oil cargo pricing and the month of delivery for certain crude oil purchases. We utilize OTC swaps to accomplish this.
We have entered into forward purchase contracts for crude oil and forward purchases and sales contracts of refined products. We elect the normal purchases normal sales (“NPNS”) exception for all forward contracts that meet the definition of a derivative and are not expected to net settle. Any gains and losses with respect to these forward contracts designated as NPNS are not reflected in earnings until the delivery occurs. Our open futures and OTC swaps expire at various dates through September 2019 .
We elect to offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement. Our condensed consolidated balance sheets present derivative assets and liabilities on a net basis. Please read Note 11—Fair Value Measurements for the gross fair value and net carrying value of our derivative instruments. Our cash margin that is required as collateral deposits cannot be offset against the fair value of open contracts except in the event of default.
At June 30, 2019 , our open commodity derivative contracts represented (in thousands of barrels):
Contract type
 
Purchases
 
Sales
 
Net
Futures
 
1,045

 
(308
)
 
737

Swaps
 
2,700

 
(3,946
)
 
(1,246
)
Total
 
3,745

 
(4,254
)
 
(509
)
Interest Rate Derivatives
We are exposed to interest rate volatility in our ABL Revolver , Term Loan B Facility, Retail Property Term Loan , Supply and Offtake Agreements, and Washington Refinery Intermediation Agreement . We may utilize interest rate swaps to manage our interest rate risk. As of June 30, 2019 , we entered into an interest rate swap at an average fixed rate of 3.91% in exchange for the floating interest rate and on the notional amounts due under the Retail Property Term Loan . This swap expires on April 1, 2024 , the maturity date of the Retail Property Term Loan .
Our 5.00% Convertible Senior Notes include a redemption option and a related make-whole premium which represent an embedded derivative that is not clearly and closely related to the 5.00% Convertible Senior Notes . As such, we have accounted for this embedded derivative at fair value with changes in the fair value recorded in Interest expense and financing costs, net , on our condensed consolidated statements of operations. As of June 30, 2019 , this embedded derivative was deemed to have a de minimis fair value.

16
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



The following table provides information on the fair value amounts (in thousands) of these derivatives as of June 30, 2019 and December 31, 2018 and their placement within our condensed consolidated balance sheets.
 
Balance Sheet Location
 
June 30, 2019
 
December 31, 2018
 
 
 
Asset (Liability)
Commodity derivatives (1)
Prepaid and other current assets
 
$
1,730

 
$
4,973

Commodity derivatives
Other accrued liabilities
 
(16,878
)
 
(700
)
J. Aron repurchase obligation derivative
Obligations under inventory financing agreements
 
165

 
4,085

MLC repurchase obligation derivative
Obligations under inventory financing agreements
 
(5,639
)
 
—

Interest rate derivatives
Prepaid and other current assets
 
—

 
191

Interest rate derivatives
Other accrued liabilities
 
(188
)
 
—

Interest rate derivatives
Other liabilities
 
(1,286
)
 
—

_________________________________________________________
(1)
Does not include cash collateral of $2.7 million and $2.7 million recorded in Prepaid and other current assets and $9.5 million and $8.3 million in Other long-term assets as of June 30, 2019 and December 31, 2018 , respectively.
The following table summarizes the pre-tax gains (losses) recognized on our condensed consolidated statements of operations resulting from changes in fair value of derivative instruments not designated as hedges charged directly to earnings (in thousands):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Statement of Operations Location
 
2019
 
2018
 
2019
 
2018
Commodity derivatives
Cost of revenues (excluding depreciation)
 
$
(2,755
)
 
$
(1,247
)
 
$
(3,259
)
 
$
3,685

J. Aron repurchase obligation derivative
Cost of revenues (excluding depreciation)
 
13,388

 
8,800

 
(3,919
)
 
15,142

MLC repurchase obligation derivative
Cost of revenues (excluding depreciation)
 
9,603

 
—

 
(3,339
)
 
—

Interest rate derivatives
Interest expense and financing costs, net
 
(1,471
)
 
62

 
(1,470
)
 
1,298

Note 11 — Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Common Stock Warrants
As of June 30, 2019 and December 31, 2018 , we had 354,350 common stock warrants outstanding. We estimate the fair value of our outstanding common stock warrants using the difference between the strike price of the warrant and the market price of our common stock, which is a Level 3 fair value measurement. As of June 30, 2019 and December 31, 2018 , the warrants had a weighted-average exercise price of $0.09 and $0.09 and a remaining term of 3.17 years and 3.67 years , respectively.
The estimated fair value of the common stock warrants was $20.45 and $14.13 per share as of June 30, 2019 and December 31, 2018 , respectively.
Derivative Instruments
We utilize crude oil commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil, future purchases and sales of refined products, and cost of crude oil consumed in the refining process. We may utilize interest rate swaps to manage our interest rate risk.
We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as Level 1 instruments are valued using quoted prices in active markets for identical assets and liabilities. These include our exchange traded futures. Level 2 instruments are valued using quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Our Level 2 instruments include OTC swaps and options. These commodity derivatives are valued using market quotations from independent price reporting agencies and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. The valuation of our J. Aron and MLC repurchase obligation embedded derivatives requires that we make estimates of the prices and differentials assuming settlement at the end of the reporting period; therefore, they are classified as Level 3 instruments. We do not have other commodity derivatives classified as Level 3 at June 30, 2019 or December 31, 2018 . Please read Note 10—Derivatives for further information on derivatives.
Financial Statement Impact
Fair value amounts by hierarchy level as of June 30, 2019 and December 31, 2018 are presented gross in the tables below (in thousands):
 
June 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Effect of Counter-Party Netting
 
Net Carrying Value on Balance Sheet (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
1,851

 
$
3,688

 
$
—

 
$
5,539

 
$
(3,809
)
 
$
1,730

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Common stock warrants
$
—

 
$
—

 
$
(7,246
)
 
$
(7,246
)
 
$
—

 
$
(7,246
)
Commodity derivatives
(976
)
 
(19,711
)
 
—

 
(20,687
)
 
3,809

 
(16,878
)
J. Aron repurchase obligation derivative
—

 
—

 
165

 
165

 
—

 
165

MLC repurchase obligation derivative
—

 
—

 
(5,639
)
 
(5,639
)
 
—

 
(5,639
)
Interest rate derivatives
—

 
(1,474
)
 
—

 
(1,474
)
 
—

 
(1,474
)
Total
$
(976
)
 
$
(21,185
)
 
$
(12,720
)
 
$
(34,881
)
 
$
3,809

 
$
(31,072
)

17
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Effect of Counter-Party Netting
 
Net Carrying Value on Balance Sheet (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
170

 
$
5,234

 
$
—

 
$
5,404

 
$
(431
)
 
$
4,973

Interest rate derivatives
—

 
191

 
—

 
191

 
—

 
191

Total
$
170

 
$
5,425

 
$
—

 
$
5,595

 
$
(431
)
 
$
5,164

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Common stock warrants
$
—

 
$
—

 
$
(5,007
)
 
$
(5,007
)
 
$
—

 
$
(5,007
)
Commodity derivatives
(870
)
 
(261
)
 
—

 
(1,131
)
 
431

 
(700
)
J. Aron repurchase obligation derivative
—

 
—

 
4,085

 
4,085

 
—

 
4,085

Total
$
(870
)
 
$
(261
)
 
$
(922
)
 
$
(2,053
)
 
$
431

 
$
(1,622
)
_________________________________________________________
(1)
Does not include cash collateral of $12.2 million and $10.9 million as of June 30, 2019 and December 31, 2018 , respectively, included within Prepaid and other current assets and Other long-term assets on our condensed consolidated balance sheets.
A roll forward of Level 3 financial instruments measured at fair value on a recurring basis is as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Balance, at beginning of period
$
(26,741
)
 
$
(19,285
)
 
$
(922
)
 
$
(26,372
)
Settlements
(7,898
)
 
—

 
(7,898
)
 
—

Acquired
6,353

 
—

 
(2,301
)
 
—

Total unrealized income (loss) included in earnings
15,566

 
8,726

 
(1,599
)
 
15,813

Balance, at end of period
$
(12,720
)
 
$
(10,559
)
 
$
(12,720
)
 
$
(10,559
)
The carrying value and fair value of long-term debt and other financial instruments as of June 30, 2019 and December 31, 2018 are as follows (in thousands):
 
June 30, 2019
 
Carrying Value
 
Fair Value
5.00% Convertible Senior Notes due 2021 (1) (3)
$
71,621

 
$
101,583

7.75% Senior Secured Notes due 2025 (1)
291,386

 
298,125

Mid Pac Term Loan (2)
1,449

 
1,449

Term Loan B Facility (1)
235,767

 
248,727

Retail Property Term Loan (2)
43,873

 
43,873

Common stock warrants (2)
7,246

 
7,246


18
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



 
December 31, 2018
 
Carrying Value
 
Fair Value
5.00% Convertible Senior Notes due 2021 (1) (3)
$
100,411

 
$
121,488

7.75% Senior Secured Notes due 2025 (1)
290,763

 
270,000

Mid Pac Term Loan (2)
1,466

 
1,466

Common stock warrants (2)
5,007

 
5,007

_________________________________________________________
(1)
The fair values measurements of the  5.00% Convertible Senior Notes , 7.75% Senior Secured Notes , and Term Loan B Facility are considered Level 2 measurements as discussed below.
(2)
The fair value of the common stock warrants, Mid Pac Term Loan , and Retail Property Term Loan are considered Level 3 measurements in the fair value hierarchy.
(3)
The carrying value of the  5.00% Convertible Senior Notes  excludes the fair value of the equity component, which was classified as equity upon issuance.
The fair value of the 5.00% Convertible Senior Notes was determined by aggregating the fair value of the liability and equity components of the notes. The fair value of the liability component of the 5.00% Convertible Senior Notes was determined using a discounted cash flow analysis in which the projected interest and principal payments were discounted at an estimated market yield for a similar debt instrument without the conversion feature. The equity component was estimated based on the Black-Scholes model for a call option with strike price equal to the conversion price, a term matching the remaining life of the 5.00% Convertible Senior Notes , and an implied volatility based on market values of options outstanding as of June 30, 2019 . The fair value of the 5.00% Convertible Senior Notes  is considered a Level 2 measurement in the fair value hierarchy.
The fair value of the 7.75% Senior Secured Notes and the Term Loan B Facility were determined using a market approach based on quoted prices. Because the 7.75% Senior Secured Notes and Term Loan B Facility may not be actively traded, the inputs used to measure the fair value are classified as Level 2 inputs within the fair value hierarchy.
The fair value of all non-derivative financial instruments recorded in current assets, including cash and cash equivalents, restricted cash, and trade accounts receivable, and current liabilities, including accounts payable, approximate their carrying value due to their short-term nature.

19
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Note 12 — Leases
We have cancelable and non-cancelable finance and operating lease obligations for the lease of land, vehicles, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products. Most of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 30 years or more. There are no material lease arrangements where we are the lessor.
We determine whether a contract is or contains a lease when we have the right to control the use of the identified asset in exchange for consideration. Lease liabilities and ROU assets are recognized at the commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate in the calculation of present value unless the implicit rate can be readily determined. Certain leases include provisions for variable payments based upon percentage of sales and/or other operating metrics; escalation provisions to adjust rental payments to reflect changes in price indices and fair market rents; and provisions for the renewal, termination, and/or purchase of the leased asset. We only consider fixed payments and those options that are reasonably certain to be exercised in the determination of the lease term and the initial measurement of lease liabilities and ROU assets. Expense for operating lease payments is recognized as lease expense on a straight-line basis over the lease term. Expense for finance leases is recognized as amortization expense on a straight-line basis and interest expense on an effective rate basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
We do not separate lease and nonlease components of a contract. There are no material residual value guarantees associated with any of our leases.
The following table provides information on the amounts (in thousands, except lease term and discount rates) of our leased assets and liabilities as of June 30, 2019 and their placement within our condensed consolidated balance sheets:
Lease type
 
Balance Sheet Location
 
June 30, 2019
Assets
 
 
 
 
Finance
 
Property, plant, and equipment
 
$
10,781

Finance
 
Accumulated amortization
 
(3,481
)
Finance
 
Property and equipment, net
 
$
7,300

Operating
 
Operating lease assets
 
389,047

Total leased assets
 
 
 
$
396,347

 
 
 
 
 
Liabilities
 
 
 
 
Current
 
 
 
 
Finance
 
Other accrued liabilities
 
$
1,718

Operating
 
Operating lease liabilities
 
59,707

Long-term
 
 
 
 
Finance
 
Finance lease liabilities
 
6,501

Operating
 
Operating lease liabilities
 
332,465

Total lease liabilities
 
 
 
$
400,391

 
 
 
 
 
Weighted-average remaining lease term (in years)
 
 
Finance
 
 
 
5.94

Operating
 
 
 
11.40

Weighted-average discount rate
 
 
Finance
 
 
 
6.69
%
Operating
 
 
 
7.77
%

20
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



The following table summarizes the lease costs recognized on our condensed consolidated statements of operations (in thousands):
Lease cost type
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Finance lease cost
 
 
 
 
Amortization of finance lease assets
 
$
402

 
$
901

Interest on lease liabilities
 
108

 
264

Operating lease cost
 
24,566

 
47,978

Variable lease cost
 
910

 
2,540

Short-term lease cost
 
163

 
416

Net lease cost
 
$
26,149

 
$
52,099

The following table summarizes the supplemental cash flow information related to leases as follows (in thousands):
Lease type
 
Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of liabilities
 
 
Financing cash flows from finance leases
 
$
996

Operating cash flows from finance leases
 
245

Operating cash flows from operating leases
 
46,044

Non-cash supplemental amounts
 
 
ROU assets obtained in exchange for new finance lease obligations
 
192

ROU assets obtained in exchange for new operating lease obligations
 
14,308

The table below includes the estimated future undiscounted cash flows for finance and operating leases as of June 30, 2019 (in thousands):
For the year ending December 31,
 
Finance leases
 
Operating leases
 
Total
2019 (1)
 
$
1,249

 
$
47,357

 
$
48,606

2020
 
1,983

 
79,554

 
81,537

2021
 
1,411

 
51,536

 
52,947

2022
 
1,195

 
49,395

 
50,590

2023
 
1,166

 
48,358

 
49,524

2024
 
936

 
42,737

 
43,673

Thereafter
 
2,005

 
241,297

 
243,302

Total lease payments
 
9,945

 
560,234

 
570,179

Less amount representing interest
 
(1,726
)
 
(168,062
)
 
(169,788
)
Present value of lease liabilities
 
$
8,219

 
$
392,172

 
$
400,391

_________________________________________________________
(1)
Represents period from July 1, 2019 to December 31, 2019 .
Additionally, the Company has $52.8 million in future undiscounted cash flows for two operating leases that have not yet commenced. These leases are expected to commence when the lessor has made the equipment or location available to the Company to operate or begin construction, respectively.

21
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



At December 31, 2018 , the estimated minimum lease payments for capital and operating leases with initial or remaining non-cancelable lease terms in excess of one year were as follows (in thousands):
 
Capital leases
 
Operating leases
2019
$
2,723

 
$
62,589

2020
2,264

 
62,132

2021
1,757

 
39,821

2022
1,512

 
38,402

2023
1,148

 
38,827

Thereafter
2,600

 
191,717

Total minimum rental payments
$
12,004

 
$
433,488

Less amount representing interest
1,865

 
 
Present value of minimum rental payments
$
10,139

 
 
Note 13 — Commitments and Contingencies
In the ordinary course of business, we are a party to various lawsuits and other contingent matters. We establish accruals for specific legal matters when we determine that the likelihood of an unfavorable outcome is probable and the loss is reasonably
estimable. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on our financial condition, results of operations, or cash flows.
United Steelworkers Union Dispute
A portion of our employees at the Hawaii refinery are represented by the United Steelworkers Union (“USW”). On March 23, 2015, the union ratified a four -year extension of the collective bargaining agreement. On January 13, 2016, the USW filed a claim against PHR before the United States National Labor Relations Board (the “NLRB”) alleging a refusal to bargain collectively and in good faith. On March 29, 2016, the NLRB deferred final determination on the USW charge to the grievance/arbitration process under the extant collective bargaining agreement. Arbitration was commenced and concluded on October 1, 2018, with the arbitrator taking the matter under advisement thereafter. In a decision dated November 27, 2018, the arbitrator denied the grievance without prejudice to USW's NLRB claim regarding retiree medical and short term disability benefits. On June 5, 2019, the NLRB approved the withdrawal of USW’s claim against PHR.
Environmental Matters
Like other petroleum refiners and exploration and production companies, our operations are subject to extensive and periodically-changing federal and state environmental regulations governing air emissions, wastewater discharges, and solid and hazardous waste management activities. Many of these regulations are becoming increasingly stringent and the cost of compliance can be expected to increase over time.
Periodically, we receive communications from various federal, state, and local governmental authorities asserting violations of environmental laws and/or regulations. These governmental entities may also propose or assess fines or require corrective actions for these asserted violations. We intend to respond in a timely manner to all such communications and to take appropriate corrective action. Except as disclosed below, we do not anticipate that any such matters currently asserted will have a material impact on our financial condition, results of operations, or cash flows.
Wyoming Refinery
Our Wyoming refinery is subject to a number of consent decrees, orders, and settlement agreements involving the U.S. Environmental Protection Agency (“ EPA ”) and/or the Wyoming Department of Environmental Quality, some of which date back to the late 1970s and several of which remain in effect, requiring further actions at the Wyoming refinery. The largest cost component arising from these various decrees relates to the investigation, monitoring, and remediation of soil, groundwater, surface water, and sediment contamination associated with the facility’s historic operations. Investigative work by Wyoming Refining and negotiations with the relevant agencies as to remedial approaches remain ongoing on a number of aspects of the contamination, meaning that investigation, monitoring, and remediation costs are not reasonably estimable for some elements of these efforts. As of June 30, 2019 , we have accrued $17.0 million for the well-understood components of these efforts based on current information, approximately one-third of which we expect to incur in the next five years and the remainder to be incurred over approximately 30 years .
Additionally, we believe the Wyoming refinery will need to modify or close a series of wastewater impoundments in the next several years and replace those impoundments with a new wastewater treatment system. Based on current information, reasonable estimates we have received suggest costs of approximately $11.6 million to design and construct a new wastewater treatment system.
Finally, among the various historic consent decrees, orders, and settlement agreements into which Hermes Consolidated LLC, and its wholly owned subsidiary, Wyoming Pipeline Company (collectively, “WRC” or “Wyoming Refining”) have entered, there are several penalty orders associated with exceedances of permitted limits by the Wyoming refinery’s wastewater discharges. Although the frequency of these exceedances has declined over time, Wyoming Refining may become subject to new penalty enforcement action in the next several years, which could involve penalties in excess of $100,000 .
Regulation of Greenhouse Gases
The EPA regulates greenhouse gases (“GHG”) under the federal Clean Air Act (“CAA”). New construction or material expansions that meet certain GHG emissions thresholds will likely require that, among other things, a GHG permit be issued in accordance with the federal CAA regulations and we will be required, in connection with such permitting, to undertake a technology review to determine appropriate controls to be implemented with the project in order to reduce GHG emissions.
Furthermore, the EPA is currently developing refinery-specific GHG regulations and performance standards that are expected to impose GHG emission limits and/or technology requirements. These control requirements may affect a wide range of refinery operations. Any such controls could result in material increased compliance costs, additional operating restrictions for

22
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



our business, and an increase in the cost of the products we produce, which could have a material adverse effect on our financial condition, results of operations, or cash flows.
On September 29, 2015, the EPA announced a final rule updating standards that control toxic air emissions from petroleum refineries, addressing, among other things, flaring operations, fenceline air quality monitoring, and additional emission reductions from storage tanks and delayed coking units. Compliance with this rule has not had a material impact on our financial condition, results of operations, or cash flows to date.
In 2007, the State of Hawaii passed Act 234, which required that GHG emissions be rolled back on a statewide basis to 1990 levels by the year 2020. In June of 2014, the Hawaii Department of Health (“DOH”) adopted regulations that require each major facility to reduce CO 2 emissions by 16% by 2020 relative to a calendar year 2010 baseline (the first year in which GHG emissions were reported to the EPA under 40 CFR Part 98). The Hawaii refinery’s capacity to materially reduce fuel use and GHG emissions is limited because most energy conservation measures have already been implemented over the past 20 years. The regulation allows for “partnering” with other facilities (principally power plants) that have already dramatically reduced greenhouse emissions or are on schedule to reduce CO 2 emissions in order to comply independently with the state’s Renewable Portfolio Standards. The DOH's GHG regulation allows, and the Hawaii refinery submitted, a GHG reduction plan, which includes an assessment of alternatives which demonstrates that additional reductions are not cost-effective or necessary because the State of Hawaii has already reached the 1990 levels according to report prepared by the DOH in January 2019.
Fuel Standards
In 2007, the U.S. Congress passed the Energy Independence and Security Act of 2007 (the “EISA”) which, among other things, set a target fuel economy standard of 35 miles per gallon for the combined fleet of cars and light trucks in the U.S. by model year 2020 and contained an expanded Renewable Fuel Standard (the “RFS”). In August 2012, the EPA and National Highway Traffic Safety Administration (“NHTSA”) jointly adopted regulations that establish an average industry fuel economy of 54.5 miles per gallon by model year 2025. On August 8, 2018, the EPA and NHTSA jointly proposed to revise existing fuel economy standards for model years 2021-2025 and to set standards for 2026 for the first time. The agencies have not yet issued a final rule, but they are expected to do so in 2019. Although the revised fuel economy standards are expected to be less stringent than the initial standards for model years 2021-2025, it is uncertain whether the revised standards will increase year over year. Higher fuel economy standards have the potential to reduce demand for our refined transportation fuel products.
Under EISA, the RFS requires an increasing amount of renewable fuel to be blended into the nation’s transportation fuel supply, up to 36 billion gallons by 2022. In the near term, the RFS will be satisfied primarily with fuel ethanol blended into gasoline. We, and other refiners subject to the RFS, may meet the RFS requirements by blending the necessary volumes of renewable fuels produced by us or purchased from third parties. To the extent that refiners will not or cannot blend renewable fuels into the products they produce in the quantities required to satisfy their obligations under the RFS program, those refiners must purchase renewable credits, referred to as RINs, to maintain compliance. To the extent that we exceed the minimum volumetric requirements for blending of renewable fuels, we generate our own RINs for which we have the option of retaining these self-generated RINs for current or future RFS compliance or selling those RINs on the open market. The RFS may present production and logistics challenges for both the renewable fuels and petroleum refining and marketing industries in that we may have to enter into arrangements with other parties or purchase D3 waivers from the EPA to meet our obligations to use advanced biofuels, including biomass-based diesel and cellulosic biofuel, with potentially uncertain supplies of these new fuels.
In October 2010, the  EPA issued a partial waiver decision under the federal CAA to allow for an increase in the amount of ethanol permitted to be blended into gasoline from 10% (“E10”) to 15% (“E15”) for 2007 and newer light duty motor vehicles. In January 2011, the EPA issued a second waiver for the use of E15 in vehicles model years 2001-2006. In 2019, the EPA is expected to conduct a rulemaking to allow year-round sales of E15. There are numerous issues, including state and federal regulatory issues, that need to be addressed before E15 can be marketed on a large scale for use in traditional gasoline engines; however, increased renewable fuel in the nation's transportation fuel supply could reduce demand for our refined products.
In March 2014, the EPA published a final Tier 3 gasoline standard that requires, among other things, that gasoline contain no more than 10 parts per million (“ppm”) sulfur on an annual average basis and no more than 80 ppm sulfur on a per-gallon basis. The standard also lowers the allowable benzene, aromatics, and olefins content of gasoline. The effective date for the new standard was January 1, 2017, however, approved small volume refineries have until January 1, 2020 to meet the standard. The eastern location of our co-located Hawaii refinery was required to comply with Tier 3 gasoline standards within 30 months of June 21, 2016, the date our Hawaii refinery was disqualified from small volume refinery status, and is currently compliant. On March 19, 2015, the EPA confirmed the small refinery status of our Wyoming refinery. The Par East facility of our Hawaii refinery, our Wyoming refinery, and our Washington refinery, acquired in January 2019, were all granted small refinery status by the EPA for 2017.

23
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Beginning on June 30, 2014, new sulfur standards for fuel oil used by marine vessels operating within 200 miles of the U.S. coastline (which includes the entire Hawaiian Island chain) was lowered from 10,000 ppm (1%) to 1,000 ppm (0.1%). The sulfur standards began at the Hawaii refinery and were phased in so that by January 1, 2015, they were to be fully aligned with the International Marine Organization (“IMO”) standards and deadline. The more stringent standards apply universally to both U.S. and foreign-flagged ships. Although the marine fuel regulations provided vessel operators with a few compliance options such as installation of on-board pollution controls and demonstration unavailability, many vessel operators will be forced to switch to a distillates fuel while operating within the Emission Control Area (“ECA”). Beyond the 200 mile ECA, large ocean vessels are still allowed to burn marine fuel with up to 3.5% sulfur. Our Hawaii refinery is capable of producing the 1% sulfur residual fuel oil that was previously required within the ECA. Although our Hawaii refinery remains in a position to supply vessels traveling to and through Hawaii, the market for 0.1% sulfur distillates fuel and 3.5% sulfur residual fuel is much more competitive.
In addition to U.S. fuels requirements, the IMO has also adopted newer standards that further reduce the global limit on sulfur content in maritime fuels to 0.5% beginning in 2020 (“IMO 2020”). Like the rest of the refining industry, we are focused on meeting these standards and may incur costs in producing lower-sulfur fuels.
There will be compliance costs and uncertainties regarding how we will comply with the various requirements contained in the EISA, RFS, IMO 2020, and other fuel-related regulations. We may experience a decrease in demand for refined petroleum products due to an increase in combined fleet mileage or due to refined petroleum products being replaced by renewable fuels.
Environmental Agreement
On September 25, 2013 , Par Petroleum, LLC (formerly Hawaii Pacific Energy, a wholly owned subsidiary of Par created for purposes of the PHR acquisition), Tesoro, and PHR entered into an Environmental Agreement (“Environmental Agreement”) that allocated responsibility for known and contingent environmental liabilities related to the acquisition of PHR , including the Consent Decree as described below.
Consent Decree
On July 18, 2016, PHR and subsidiaries of Tesoro entered into a consent decree with the EPA, the U.S. Department of Justice (“DOJ”), and other state governmental authorities concerning alleged violations of the federal CAA related to the ownership and operation of multiple facilities owned or formerly owned by Tesoro and its affiliates (“Consent Decree”), including the Par East facility of our Hawaii refinery. As a result of the Consent Decree, PHR expanded its previously-announced 2016 Hawaii refinery turnaround to undertake additional capital improvements to reduce emissions of air pollutants and to provide for certain nitrogen oxide and sulfur dioxide emission controls and monitoring required by the Consent Decree.
Tesoro is responsible under the Environmental Agreement for directly paying, or reimbursing PHR, for all reasonable third-party capital expenditures incurred pursuant to the Consent Decree to the extent related to acts or omissions prior to the date of the closing of the PHR acquisition. Tesoro is obligated to pay all applicable fines and penalties related to the Consent Decree. Through  June 30, 2019 , Tesoro has reimbursed us for $12.2 million of our total capital expenditures incurred in connection with the Consent Decree. As of June 30, 2019 , all reimbursable capital expenditures incurred pursuant to the Consent Decree were collected. Net capital expenditures and reimbursements related to the Consent Decree for the six months ended June 30, 2019 and 2018 are presented within Capital expenditures on our condensed consolidated statement of cash flows for the related periods.
Indemnification
In addition to its obligation to reimburse us for capital expenditures incurred pursuant to the Consent Decree, Tesoro agreed to indemnify us for claims and losses arising out of related breaches of Tesoro’s representations, warranties, and covenants in the Environmental Agreement, certain defined “corrective actions” relating to pre-existing environmental conditions, third-party claims arising under environmental laws for personal injury or property damage arising out of or relating to releases of hazardous materials that occurred prior to the date of the closing of the PHR acquisition, any fine, penalty, or other cost assessed by a governmental authority in connection with violations of environmental laws by PHR prior to the date of the closing of the PHR acquisition, certain groundwater remediation work, fines, or penalties imposed on PHR by the Consent Decree related to acts or omissions of Tesoro prior to the date of the closing of the PHR acquisition, and claims and losses related to the Pearl City Superfund Site.
Tesoro’s indemnification obligations are subject to certain limitations as set forth in the Environmental Agreement. These limitations include a deductible of $1 million and a cap of $15 million for certain of Tesoro’s indemnification obligations related to certain pre-existing conditions, as well as certain restrictions regarding the time limits for submitting notice and supporting documentation for remediation actions.

24
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Recovery Trusts
We emerged from the reorganization of Delta Petroleum Corporation (“Delta”) on August 31, 2012 (“Emergence Date”), when the plan of reorganization (“Plan”) was consummated. On the Emergence Date, we formed the Delta Petroleum General Recovery Trust (“General Trust”). The General Trust was formed to pursue certain litigation against third parties, including preference actions, fraudulent transfer and conveyance actions, rights of setoff and other claims, or causes of action under the U.S. Bankruptcy Code and other claims and potential claims that Delta and its subsidiaries (collectively, “Debtors”) hold against third parties. On February 27, 2018, the Bankruptcy Court entered its final decree closing the Chapter 11 bankruptcy cases of Delta and the other Debtors, discharging the trustee for the General Trust, and finding that all assets of the General Trust were resolved, abandoned, or liquidated and have been distributed in accordance with the requirements of the Plan. In addition, the final decree required the Company or the General Trust, as applicable, to maintain the current accruals owed on account of the remaining claims of the U.S. Government and Noble Energy, Inc.
As of June 30, 2019 , two related claims totaling approximately $22.4 million remained to be resolved and we have accrued approximately $0.5 million representing the estimated value of claims remaining to be settled which are deemed probable and estimable at period end.
One of the two remaining claims was filed by the U.S. Government for approximately $22.4 million relating to ongoing litigation concerning a plugging and abandonment obligation in Pacific Outer Continental Shelf Lease OCS-P 0320, comprising part of the Sword Unit in the Santa Barbara Channel, California. The second unliquidated claim, which is related to the same plugging and abandonment obligation, was filed by Noble Energy Inc., the operator and majority interest owner of the Sword Unit. We believe the probability of issuing stock to satisfy the full claim amount is remote, as the obligations upon which such proof of claim is asserted are joint and several among all working interest owners and Delta, our predecessor, only owned an approximate 3.4% aggregate working interest in the unit.
The settlement of claims is subject to ongoing litigation and we are unable to predict with certainty how many shares will be required to satisfy all claims. Pursuant to the Plan, allowed claims were settled at a ratio of 54.4 shares per $1,000 of claim.
Note 14 — Stockholders’ Equity
Incentive Plans
The following table summarizes our compensation costs recognized in General and administrative expense (excluding depreciation) and Operating expense (excluding depreciation) under the Amended and Restated Par Pacific Holdings, Inc. 2012 Long-term Incentive Plan and Stock Purchase Plan (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Restricted Stock Awards
$
854

 
$
936

 
$
1,800

 
$
1,779

Restricted Stock Units
308

 
220

 
562

 
370

Stock Option Awards
388

 
508

 
723

 
954

During the three and six months ended June 30, 2019 , we granted 27 thousand shares and 274 thousand shares of restricted stock and restricted stock units with a fair value of approximately $0.2 million and $4.4 million , respectively. As of June 30, 2019 , there were approximately $8.0 million of total unrecognized compensation costs related to restricted stock awards and restricted stock units, which are expected to be recognized on a straight-line basis over a weighted-average period of 1.9 years .
During the six months ended June 30, 2019 , we granted 300 thousand stock option awards with a weighted-average exercise price of $17.00 per share and no grants were made for the three months ended June 30, 2019 . As of June 30, 2019 , there were approximately $3.5 million of total unrecognized compensation costs related to stock option awards, which are expected to be recognized on a straight-line basis over a weighted-average period of 1.9 years .
During the six months ended June 30, 2019 , we granted 48 thousand performance restricted stock units to executive officers and no performance restricted stock units were granted for the three months ended June 30, 2019 . These performance restricted stock units had a fair value of approximately $0.8 million and are subject to certain annual performance targets as defined by our Board of Directors. As of June 30, 2019 , there were approximately $1.3 million of total unrecognized compensation costs related to the performance restricted stock units, which are expected to be recognized on a straight-line basis over a weighted-average period of 2.1 years .

25
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Note 15 — Income (Loss) per Share
Basic income (loss) per share is computed by dividing net income (loss) by the sum of the weighted-average number of common shares outstanding and the weighted-average number of shares issuable under the common stock warrants, representing 354 thousand and 354 thousand shares during the three and six months ended June 30, 2019 and June 30, 2018 , respectively. The common stock warrants are included in the calculation of basic income (loss) per share because they are issuable for minimal consideration. The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
28,169

 
$
16,178

 
$
89,261

 
$
31,363

Less: Undistributed income allocated to participating securities (1)
324

 
242

 
1,021

 
433

Net income attributable to common stockholders
27,845

 
15,936

 
88,240

 
30,930

Plus: Net income effect of convertible securities
—

 
—

 
8,897

 
—

Numerator for diluted income per common share
$
27,845

 
$
15,936

 
$
97,137

 
$
30,930

 
 
 
 
 
 
 
 
Basic weighted-average common stock shares outstanding
49,960

 
45,684

 
49,529

 
45,659

Plus: dilutive effects of common stock equivalents
114

 
39

 
6,051

 
41

Diluted weighted-average common stock shares outstanding
50,074

 
45,723

 
55,580

 
45,700

 
 
 
 
 
 
 
 
Basic income per common share
$
0.56

 
$
0.35

 
$
1.78

 
$
0.68

Diluted income per common share  
$
0.56

 
$
0.35

 
$
1.75

 
$
0.68

________________________________________________________
(1)
Participating securities include restricted stock that has been issued but has not yet vested.
For each of the three and six months ended June 30, 2019 , our calculation of diluted shares outstanding excluded 8 thousand shares of unvested restricted stock. Additionally, the calculation of diluted shares outstanding for the three and six months ended June 30, 2019 excluded 1.9 million and 1.8 million stock options, respectively. For the three and six months ended June 30, 2018 , our calculation of diluted shares outstanding excluded 7 thousand and 27 thousand shares of unvested restricted stock, respectively. For each of the three and six months ended June 30, 2018 , our calculation of diluted shares outstanding excluded 1.3 million stock options.
As discussed in Note 9—Debt , we have the option of settling the 5.00% Convertible Senior Notes in cash or shares of common stock, or any combination thereof, upon conversion. For the three and six months ended June 30, 2019 and June 30, 2018 , diluted income (loss) per share was determined using the if-converted method. Our calculation of diluted shares outstanding for the three months ended June 30, 2019 and the three and six months June 30, 2018 excluded 5.6 million , 6.4 million , and 6.4 million common stock equivalents, respectively, as the effect would be anti-dilutive.
Note 16 — Income Taxes
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future results of operations, and tax planning strategies in making this assessment. For the three and six months ended June 30, 2019 , we recorded an income tax benefit of $1.8 million and $66.6 million , respectively, primarily due to the release of valuation allowance in connection with the recognition of deferred tax liabilities acquired as part of the Washington Acquisition . The remaining net deferred tax assets were evaluated based upon the level of historical taxable income, significant book losses during recent prior periods, and projections for future results of operations over the periods in which the deferred tax assets are deductible, among other factors. Management continues to conclude that we did not meet the “more likely than not” requirement in order to recognize deferred tax assets on the remaining amounts and a valuation allowance has been recorded for substantially all of our net deferred tax assets at June 30, 2019 .

26
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



During the three and six months ended June 30, 2019 and 2018 , no adjustments were recognized for uncertain tax positions.
As of December 31, 2018 , we had approximately $1.5 billion in net operating loss carryforwards (“NOL carryforwards”); however, we currently have a valuation allowance against this and substantially all of our other deferred taxed assets. We will continue to assess the realizability of our deferred tax assets based on consideration of actual and projected operating results and tax planning strategies. If sufficient positive evidence of improving actual operating results becomes available, the amount of the deferred tax asset considered more likely than not to be recognized would be increased with a corresponding reduction in income tax expense in the period recorded.
Our net taxable income must be apportioned to various states based upon the income tax laws of the states in which we derive our revenue. Our NOL carryforwards will not always be available to offset taxable income apportioned to the various states. The states from which our refining, retail, and logistics revenues are derived are not the same states in which our NOLs were incurred; therefore, we expect to incur state tax liabilities on the net income of our refining, retail, and logistics operations.
Note 17 — Segment Information
We report the results for the following four business segments: (i) Refining , (ii) Retail , (iii) Logistics , and (iv) Corporate and Other. Commencing January 11, 2019 , the results of operations of the Washington Acquisition are included in our refining and logistics segments.
Summarized financial information concerning reportable segments consists of the following (in thousands):
Three Months Ended June 30, 2019
 
Refining
 
Logistics
 
Retail
 
Corporate, Eliminations and Other (1)
 
Total
Revenues
 
$
1,347,557

 
$
50,146

 
$
120,749

 
$
(109,043
)
 
$
1,409,409

Cost of revenues (excluding depreciation)
 
1,244,366

 
26,758

 
89,782

 
(109,064
)
 
1,251,842

Operating expense (excluding depreciation)
 
55,393

 
3,028

 
16,409

 
—

 
74,830

Depreciation, depletion, and amortization
 
14,613

 
3,989

 
2,532

 
785

 
21,919

General and administrative expense (excluding depreciation)
 
—

 
—

 
—

 
11,379

 
11,379

Acquisition and integration costs
 
—

 
—

 
—

 
818

 
818

Operating income (loss)
 
$
33,185

 
$
16,371

 
$
12,026

 
$
(12,961
)
 
$
48,621

Interest expense and financing costs, net
 
 
 
 
 
 
 
 
 
(20,278
)
Debt extinguishment and commitment costs
 
 
 
 
 
 
 
 
 
(3,690
)
Other income, net
 
 
 
 
 
 
 
 
 
2,177

Change in value of common stock warrants
 
 
 
 
 
 
 
 
 
(957
)
Equity earnings from Laramie Energy, LLC
 
 
 
 
 
 
 
 
 
491

Income before income taxes
 
 
 
 
 
 
 
 
 
26,364

Income tax benefit
 
 
 
 
 
 
 
 
 
1,805

Net income
 
 
 
 
 
 
 
 
 
$
28,169

 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
$
9,437

 
$
11,945

 
$
1,798

 
$
360

 
$
23,540


27
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Three Months Ended June 30, 2018
 
Refining
 
Logistics
 
Retail
 
Corporate, Eliminations and Other (1)
 
Total
Revenues
 
$
800,408

 
$
31,289

 
$
119,691

 
$
(94,992
)
 
$
856,396

Cost of revenues (excluding depreciation)
 
731,104

 
18,581

 
93,213

 
(94,974
)
 
747,924

Operating expense (excluding depreciation)
 
34,747

 
2,385

 
15,924

 
4

 
53,060

Depreciation, depletion, and amortization
 
7,475

 
1,673

 
2,697

 
930

 
12,775

General and administrative expense (excluding depreciation)
 
—

 
—

 
—

 
12,905

 
12,905

Acquisition and integration costs
 
—

 
—

 
—

 
749

 
749

Operating income (loss)
 
$
27,082

 
$
8,650

 
$
7,857

 
$
(14,606
)
 
$
28,983

Interest expense and financing costs, net
 
 
 
 
 
 
 
 
 
(10,544
)
Other income, net
 
 
 
 
 
 
 
 
 
657

Change in value of common stock warrants
 
 
 
 
 
 
 
 
 
(74
)
Equity losses from Laramie Energy, LLC
 
 
 
 
 
 
 
 
 
(2,352
)
Income before income taxes
 
 
 
 
 
 
 
 
 
16,670

Income tax expense
 
 
 
 
 
 
 
 
 
(492
)
Net income
 
 
 
 
 
 
 
 
 
$
16,178

 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
$
5,053

 
$
1,866

 
$
394

 
$
732

 
$
8,045

________________________________________________________
(1)
Includes eliminations of intersegment revenues and cost of revenues of $109.0 million and $95.0 million for the three months ended June 30, 2019 and 2018 , respectively.
Six Months Ended June 30, 2019
 
Refining
 
Logistics
 
Retail
 
Corporate, Eliminations and Other (1)
 
Total
Revenues
 
$
2,493,621

 
$
95,355

 
$
220,580

 
$
(208,812
)
 
$
2,600,744

Cost of revenues (excluding depreciation)
 
2,306,934

 
53,288

 
161,120

 
(208,768
)
 
2,312,574

Operating expense (excluding depreciation)
 
110,648

 
5,392

 
32,464

 
—

 
148,504

Depreciation, depletion, and amortization
 
28,491

 
7,885

 
4,906

 
1,594

 
42,876

General and administrative expense (excluding depreciation)
 
—

 
—

 
—

 
23,044

 
23,044

Acquisition and integration costs
 
—

 
—

 
—

 
3,702

 
3,702

Operating income (loss)
 
$
47,548

 
$
28,790

 
$
22,090

 
$
(28,384
)
 
$
70,044

Interest expense and financing costs, net
 
 
 
 
 
 
 
 
 
(38,988
)
Debt extinguishment and commitment costs
 
 
 
 
 
 
 
 
 
(9,186
)
Other income, net
 
 
 
 
 
 
 
 
 
2,264

Change in value of common stock warrants
 
 
 
 
 
 
 
 
 
(2,239
)
Equity earnings from Laramie Energy, LLC
 
 
 
 
 
 
 
 
 
792

Income before income taxes
 
 
 
 
 
 
 
 
 
22,687

Income tax benefit
 
 
 
 
 
 
 
 
 
66,574

Net income
 
 
 
 
 
 
 
 
 
$
89,261

 
 
 
 
 
 
 
 
 
 

Capital expenditures
 
$
18,883

 
$
17,458

 
$
4,277

 
$
786

 
$
41,404




28
PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended June 30, 2019 and 2018



Six Months Ended June 30, 2018
 
Refining
 
Logistics
 
Retail
 
Corporate, Eliminations and Other (1)
 
Total
Revenues
 
$
1,540,671

 
$
64,356

 
$
198,283

 
$
(181,475
)
 
$
1,621,835

Cost of revenues (excluding depreciation)
 
1,399,583

 
39,391

 
152,360

 
(181,511
)
 
1,409,823

Operating expense (excluding depreciation)
 
72,096

 
4,207

 
27,763

 
4

 
104,070

Depreciation, depletion, and amortization
 
15,837

 
3,315

 
4,565

 
2,095

 
25,812

General and administrative expense (excluding depreciation)
 
—

 
—

 
—

 
24,110

 
24,110

Acquisition and integration costs
 
—

 
—

 
—

 
1,381

 
1,381

Operating income (loss)
 
$
53,155

 
$
17,443

 
$
13,595

 
$
(27,554
)
 
$
56,639

Interest expense and financing costs, net
 
 
 
 
 
 
 
 
 
(18,921
)
Other income, net
 
 
 
 
 
 
 
 
 
776

Change in value of common stock warrants
 
 
 
 
 
 
 
 
 
671

Change in value of contingent consideration
 
 
 
 
 
 
 
 
 
(10,500
)
Equity earnings from Laramie Energy, LLC
 
 
 
 
 
 
 
 
 
3,224

Income before income taxes
 
 
 
 
 
 
 
 
 
31,889

Income tax expense
 
 
 
 
 
 
 
 
 
(526
)
Net income
 
 
 
 
 
 
 
 
 
$
31,363

 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
$
10,027

 
$
4,549

 
$
1,095

 
$
1,986

 
$
17,657

________________________________________________________ 
(1)
Includes eliminations of intersegment revenues and cost of revenues of $208.8 million and $180.9 million for the six months ended June 30, 2019 and 2018 , respectively.
Note 18 — Related Party Transactions
Equity Group Investments (“EGI”) - Service Agreement
On September 17, 2013 , we entered into a letter agreement (“Services Agreement”) with Equity Group Investments (“EGI”), an affiliate of Zell Credit Opportunities Fund, LP (“ZCOF”), which owns 10% or more of our common stock directly or through affiliates. Pursuant to the Services Agreement, EGI agreed to provide us with ongoing strategic, advisory, and consulting services that may include (i) advice on financing structures and our relationship with lenders and bankers, (ii) advice regarding public and private offerings of debt and equity securities, (iii) advice regarding asset dispositions, acquisitions, or other asset management strategies, (iv) advice regarding potential business acquisitions, dispositions, or combinations involving us or our affiliates, or (v) such other advice directly related or ancillary to the above strategic, advisory, and consulting services as may be reasonably requested by us.
EGI does not receive a fee for the provision of the strategic, advisory, or consulting services set forth in the Services Agreement, but may be periodically reimbursed by us, upon request, for (i) travel and out-of-pocket expenses, provided that, in the event that such expenses exceed $50 thousand in the aggregate with respect to any single proposed matter, EGI will obtain our consent prior to incurring additional costs, and (ii) provided that we provide prior consent to their engagement with respect to any particular proposed matter, all reasonable fees and disbursements of counsel, accountants, and other professionals incurred in connection with EGI’s services under the Services Agreement. In consideration of the services provided by EGI under the Services Agreement, we agreed to indemnify EGI for certain losses relating to or arising out of the Services Agreement or the services provided thereunder.
The Services Agreement has a term of one year and will be automatically extended for successive one -year periods unless terminated by either party at least 60 days prior to any extension date. There were no costs incurred related to this agreement during the three and six months ended June 30, 2019 or 2018 .

29

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a growth-oriented company based in Houston, Texas, that owns and operates market-leading energy and infrastructure businesses.
Our business is organized into three primary operating segments:
1) Refining - We own and operate three refineries with total throughput capacity of over 200 Mbpd. Our co-located refinery in Kapolei, Hawaii, produces ultra-low sulfur diesel (“ULSD”), gasoline, jet fuel, marine fuel, low sulfur fuel oil (“LSFO”), and other associated refined products primarily for consumption in Hawaii. Our refinery in Newcastle, Wyoming , produces gasoline, ULSD, jet fuel, and other associated refined products that are primarily marketed in Wyoming and South Dakota. Our refinery in Tacoma, Washington, acquired in January 2019, produces distillates, gasoline, asphalt, and other associated refined products primarily marketed in the Pacific Northwest.
2) Retail - Our retail outlets in Hawaii sell gasoline, diesel, and retail merchandise throughout the islands of Oahu, Maui, Hawaii, and Kauai. Our Hawaii retail network includes Hele and “76” branded retail sites, company-operated convenience stores, 7-Eleven operated convenience stores, other sites operated by third parties, and unattended cardlock locations. Through June 30, 2019 , we completed the rebranding of 25 of our 34 company-operated convenience stores in Hawaii to “nomnom,” a new proprietary brand. Our retail outlets in Washington and Idaho sell gasoline, diesel, and retail merchandise and operate under the “ Cenex® ” and “Zip Trip®” brand names.
3) Logistics - We operate an extensive multi-modal logistics network spanning the Pacific, the Northwest, and the Rockies. We own and operate terminals, pipelines, an SPM, and trucking operations to distribute refined products throughout the islands of Oahu, Maui, Hawaii, Molokai, and Kauai. We own and operate a crude oil pipeline gathering system, a refined products pipeline, storage facilities, and loading racks in Wyoming and a jet fuel storage facility and pipeline that serve the Ellsworth Air Force Base in South Dakota. Beginning in January 2019, we own and operate logistics assets in Washington, including a marine terminal, a unit train-capable rail loading terminal, storage facilities, a truck rack, and a proprietary pipeline that serves McChord Air Force Base.
As of June 30, 2019 , we owned a 46.0% equity investment in Laramie Energy . Laramie Energy is focused on producing natural gas in Garfield, Mesa, and Rio Blanco Counties, Colorado.
We have four reportable segments: (i) Refining , (ii) Retail , (iii) Logistics , and (iv) Corporate and Other. Commencing January 11, 2019 , the results of operations of the Washington Acquisition are included in our refining and logistics segments. Our Corporate and Other reportable segment primarily includes general and administrative costs. Please read  Note 17—Segment Information to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for detailed information on our operating results by segment.
Results of Operations
Three months ended June 30, 2019 compared to the three months ended June 30, 2018
Net Income. Our financial performance for the second quarter 2019 was primarily driven by the Washington Acquisition and positive contributions from our logistics and retail segments. Our net income increased from $16.2 million for the three months ended June 30, 2018 to $28.2 million for the three months ended June 30, 2019 . Other factors impacting our results period over period include a $2.3 million income tax benefit associated with a partial release of our valuation allowance in connection with the Washington Acquisition, offset by higher interest expense and financing costs, net, and debt extinguishment costs.
Adjusted EBITDA and Adjusted Net Income. For the three months ended June 30, 2019 , Adjusted EBITDA was $69.0 million compared to $37.5 million for the three months ended June 30, 2018 . The increase was primarily related to higher refining contribution and logistics throughput driven by the Washington Acquisition and the Hawaii Refinery Expansion and an increase in fuel margins at our Retail segment.
For the three months ended June 30, 2019 , Adjusted Net Income was $22.9 million compared to $14.5 million for the three months ended June 30, 2018 . The change was primarily related to the same factors described above for the increase in Adjusted EBITDA partially offset by higher interest expense and financing costs, net, higher depreciation, depletion, and amortization (“DD&A”), and a decrease in our Equity earnings from Laramie Energy, excluding our share of unrealized gains or losses on derivatives.
Six months ended June 30, 2019 compared to the six months ended June 30, 2018
Net Income. During 2019 , our results were primarily driven by a $67.7 million income tax benefit associated with a partial release of our valuation allowance in connection with the Washington Acquisition . Our net income increased from $31.4 million for the six months ended June 30, 2018 to $89.3 million for the six months ended June 30, 2019 . Other factors impacting our results period over period include the impact of the Washington Acquisition , a $10.5 million charge related to the Tesoro earn-out settlement in 2018, an increase in interest expense and financing fees related to the Term Loan B Facility and Par Pacific Term Loan , debt commitment costs incurred in connection with the Washington Acquisition , a decrease in our Equity earnings from Laramie Energy, and RINs waivers received in 2018.
Adjusted EBITDA and Adjusted Net Income. For the six months ended June 30, 2019 , Adjusted EBITDA was $116.6 million compared to $63.5 million for the six months ended June 30, 2018 . The change was primarily related to improved margins in our Retail operations, and higher refining contribution and logistics throughput driven by the Washington Acquisition and the Hawaii Refinery Expansion .
For the six months ended June 30, 2019 , Adjusted Net Income was $29.3 million compared to $22.6 million for the six months ended June 30, 2018 . The increase was primarily related to the same factors described above for the increase in Adjusted EBITDA, partially offset by a decrease in our Equity earnings from Laramie Energy, excluding our share of unrealized gains or losses on derivatives, an increase in DD&A associated with assets acquired in connection with the Washington Acquisition , and an increase in interest expense and financing fees related to the Term Loan B Facility and Par Pacific Term Loan .
The following tables summarize our consolidated results of operations for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018 (in thousands). The following should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report.
 
Three Months Ended June 30,
 
 
 
 
 
2019
 
2018
 
$ Change
 
% Change (1)
Revenues
$
1,409,409

 
$
856,396

 
$
553,013

 
65
 %
Cost of revenues (excluding depreciation)
1,251,842

 
747,924

 
503,918

 
67
 %
Operating expense (excluding depreciation)
74,830

 
53,060

 
21,770

 
41
 %
Depreciation, depletion, and amortization
21,919

 
12,775

 
9,144

 
72
 %
General and administrative expense (excluding depreciation)
11,379

 
12,905

 
(1,526
)
 
(12
)%
Acquisition and integration costs
818

 
749

 
69

 
9
 %
Total operating expenses
1,360,788

 
827,413

 
 
 


Operating income
48,621

 
28,983

 
 
 


Other income (expense)
 
 
 
 
 
 


Interest expense and financing costs, net
(20,278
)
 
(10,544
)
 
(9,734
)
 
(92
)%
Debt extinguishment and commitment costs
(3,690
)
 
—

 
(3,690
)
 
NM

Other income, net
2,177

 
657

 
1,520

 
231
 %
Change in value of common stock warrants
(957
)
 
(74
)
 
(883
)
 
(1,193
)%
Equity earnings (losses) from Laramie Energy, LLC
491

 
(2,352
)
 
2,843

 
121
 %
Total other income (expense), net
(22,257
)
 
(12,313
)
 
 
 


Income before income taxes
26,364

 
16,670

 
 
 


Income tax benefit (expense)
1,805

 
(492
)
 
2,297

 
467
 %
Net income
$
28,169

 
$
16,178

 
 
 



30

 
Six Months Ended June 30,
 
 
 
 
 
2019
 
2018
 
$ Change
 
% Change (1)
Revenues
$
2,600,744

 
$
1,621,835

 
$
978,909

 
60
 %
Cost of revenues (excluding depreciation)
2,312,574

 
1,409,823

 
902,751

 
64
 %
Operating expense (excluding depreciation)
148,504

 
104,070

 
44,434

 
43
 %
Depreciation, depletion, and amortization
42,876

 
25,812

 
17,064

 
66
 %
General and administrative expense (excluding depreciation)
23,044

 
24,110

 
(1,066
)
 
(4
)%
Acquisition and integration costs
3,702

 
1,381

 
2,321

 
168
 %
Total operating expenses
2,530,700

 
1,565,196

 
 
 
 
Operating income
70,044

 
56,639

 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Interest expense and financing costs, net
(38,988
)
 
(18,921
)
 
(20,067
)
 
(106
)%
Debt extinguishment and commitment costs
(9,186
)
 
—

 
(9,186
)
 
NM

Other income, net
2,264

 
776

 
1,488

 
192
 %
Change in value of common stock warrants
(2,239
)
 
671

 
(2,910
)
 
(434
)%
Change in value of contingent consideration
—

 
(10,500
)
 
10,500

 
100
 %
Equity earnings from Laramie Energy, LLC
792

 
3,224

 
(2,432
)
 
(75
)%
Total other income (expense), net
(47,357
)
 
(24,750
)
 
 
 
 
Income before income taxes
22,687

 
31,889

 
 
 
 
Income tax benefit (expense)
66,574

 
(526
)
 
67,100

 
12,757
 %
Net income
$
89,261

 
$
31,363

 
 
 
 
________________________________________________________
(1) NM - Not meaningful
The following tables summarize our operating income (loss) by segment for the three and six months ended June 30, 2019 and 2018 (in thousands). The following should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report.
Three months ended June 30, 2019
 
Refining
 
Logistics
 
Retail
 
Corporate, Eliminations and Other (1)
 
Total
Revenues
 
$
1,347,557

 
$
50,146

 
$
120,749

 
$
(109,043
)
 
$
1,409,409

Cost of revenues (excluding depreciation)
 
1,244,366

 
26,758

 
89,782

 
(109,064
)
 
1,251,842

Operating expense (excluding depreciation)
 
55,393

 
3,028

 
16,409

 
—

 
74,830

Depreciation, depletion, and amortization
 
14,613

 
3,989

 
2,532

 
785

 
21,919

General and administrative expense (excluding depreciation)
 
—

 
—

 
—

 
11,379

 
11,379

Acquisition and integration costs
 
—

 
—

 
—

 
818

 
818

Operating income (loss)
 
$
33,185

 
$
16,371

 
$
12,026

 
$
(12,961
)
 
$
48,621


31

Three months ended June 30, 2018
 
Refining
 
Logistics
 
Retail
 
Corporate, Eliminations and Other (1)
 
Total
Revenues
 
$
800,408

 
$
31,289

 
$
119,691

 
$
(94,992
)
 
$
856,396

Cost of revenues (excluding depreciation)
 
731,104

 
18,581

 
93,213

 
(94,974
)
 
747,924

Operating expense (excluding depreciation)
 
34,747

 
2,385

 
15,924

 
4

 
53,060

Depreciation, depletion, and amortization
 
7,475

 
1,673

 
2,697

 
930

 
12,775

General and administrative expense (excluding depreciation)
 
—

 
—

 
—

 
12,905

 
12,905

Acquisition and integration costs
 
—

 
—

 
—

 
749

 
749

Operating income (loss)
 
$
27,082

 
$
8,650

 
$
7,857

 
$
(14,606
)
 
$
28,983

________________________________________________________
(1)
Includes eliminations of intersegment Revenues and Cost of revenues (excluding depreciation) of $109.0 million and $95.0 million for the three months ended June 30, 2019 and 2018 , respectively.
Six months ended June 30, 2019
 
Refining
 
Logistics
 
Retail
 
Corporate, Eliminations and Other (1)
 
Total
Revenues
 
$
2,493,621

 
$
95,355

 
$
220,580

 
$
(208,812
)
 
$
2,600,744

Cost of revenues (excluding depreciation)
 
2,306,934

 
53,288

 
161,120

 
(208,768
)
 
2,312,574

Operating expense (excluding depreciation)
 
110,648

 
5,392

 
32,464

 
—

 
148,504

Depreciation, depletion, and amortization
 
28,491

 
7,885

 
4,906

 
1,594

 
42,876

General and administrative expense (excluding depreciation)
 
—

 
—

 
—

 
23,044

 
23,044

Acquisition and integration costs
 
—

 
—

 
—

 
3,702

 
3,702

Operating income (loss)
 
$
47,548

 
$
28,790

 
$
22,090

 
$
(28,384
)
 
$
70,044

Six months ended June 30, 2018
 
Refining
 
Logistics
 
Retail
 
Corporate, Eliminations and Other (1)
 
Total
Revenues
 
$
1,540,671

 
$
64,356

 
$
198,283

 
$
(181,475
)
 
$
1,621,835

Cost of revenues (excluding depreciation)
 
1,399,583

 
39,391

 
152,360

 
(181,511
)
 
1,409,823

Operating expense (excluding depreciation)
 
72,096

 
4,207

 
27,763

 
4

 
104,070

Depreciation, depletion, and amortization
 
15,837

 
3,315

 
4,565

 
2,095

 
25,812

General and administrative expense (excluding depreciation)
 
—

 
—

 
—

 
24,110

 
24,110

Acquisition and integration costs
 
—

 
—

 
—

 
1,381

 
1,381

Operating income (loss)
 
$
53,155

 
$
17,443

 
$
13,595

 
$
(27,554
)
 
$
56,639

________________________________________________________
(1)
Includes eliminations of intersegment Revenues and Cost of revenues (excluding depreciation) of $208.8 million and $180.9 million for the six months ended June 30, 2019 and 2018 , respectively.

32

Below is a summary of key operating statistics for the refining segment for the three and six months ended June 30, 2019 and 2018 :
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019 (1)
 
2018 (1)
 
2019 (1)
 
2018 (1)
Total Refining Segment
 
 
 
 
 
 
 
Feedstocks Throughput (Mbpd) (2)
172.9

 
91.2

 
167.6

 
91.9

Refined product sales volume (Mbpd) (2)
176.4

 
95.3

 
171.1

 
98.9

 
 
 
 
 
 
 
 
Hawaii Refinery
 
 
 
 
 
 
 
Feedstocks Throughput (Mbpd)
116.2

 
73.9

 
114.6

 
75.0

 
 
 
 
 
 
 
 
Yield (% of total throughput)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
23.1
%
 
28.1
%
 
22.9
%
 
28.2
%
Distillates
44.5
%
 
48.7
%
 
43.7
%
 
47.9
%
Fuel oils
24.3
%
 
16.6
%
 
26.6
%
 
16.4
%
Other products
5.2
%
 
3.4
%
 
3.5
%
 
4.3
%
Total yield
97.1
%
 
96.8
%
 
96.7
%
 
96.8
%
 
 
 
 
 
 
 
 
Refined product sales volume (Mbpd)
 
 
 
 
 
 
 
On-island sales volume
113.5

 
71.9

 
110.2

 
70.7

Exports sale volume
4.4

 
6.8

 
5.0

 
10.7

Total refined product sales volume
117.9

 
78.7

 
115.2

 
81.4

 
 
 
 
 
 
 
 
Adjusted Gross Margin per bbl ($/throughput bbl) (3)
$
3.46

 
$
5.34

 
$
3.60

 
$
5.27

Production costs per bbl ($/throughput bbl) (4)
2.82

 
3.55

 
2.82

 
3.60

DD&A per bbl ($/throughput bbl)
0.43

 
0.65

 
0.43

 
0.68

 
 
 
 
 
 
 
 
Washington Refinery
 
 
 
 
 
 
 
Feedstocks Throughput (Mbpd) (2)
39.1

 
—

 
38.2

 
—

Yield (% of total throughput)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
24.1
%
 
—
%
 
24.1
%
 
—
%
Distillates
35.2
%
 
—
%
 
35.8
%
 
—
%
Asphalt
18.8
%
 
—
%
 
17.6
%
 
—
%
Other products
19.2
%
 
—
%
 
19.9
%
 
—
%
Total yield
97.3
%
 
—
%
 
97.4
%
 
—
%
 
 
 
 
 
 
 
 
Refined product sales volume (Mbpd) (2)
40.9

 
—

 
40.9

 
—

 
 
 
 
 
 
 
 
Adjusted Gross Margin per bbl ($/throughput bbl) (3)
$
9.92

 
$
—

 
$
9.44

 
$
—

Production costs per bbl ($/throughput bbl) (4)
4.42

 
—

 
4.63

 
—

DD&A per bbl ($/throughput bbl)
1.50

 
—

 
1.67

 
—


33

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019 (1)
 
2018 (1)
 
2019 (1)
 
2018 (1)
Wyoming Refinery
 
 
 
 
 
 
 
Feedstocks Throughput (Mbpd)
17.6

 
17.3

 
16.9

 
16.9

Yield (% of total throughput)
 
 
 
 
 
 
 
Gasoline and gasoline blendstocks
48.0
%
 
47.2
%
 
50.2
%
 
48.5
%
Distillates
45.5
%
 
48.0
%
 
43.7
%
 
46.4
%
Fuel oils
1.6
%
 
0.7
%
 
1.7
%
 
1.6
%
Other products
2.8
%
 
1.9
%
 
1.9
%
 
1.1
%
Total yield
97.9
%
 
97.8
%
 
97.5
%
 
97.6
%
 
 
 
 
 
 
 
 
Refined product sales volume (Mbpd)
17.6

 
16.6

 
17.3

 
17.5

 
 
 
 
 
 
 
 
Adjusted Gross Margin per bbl ($/throughput bbl) (3)
$
16.78

 
$
17.58

 
$
15.72

 
$
15.82

Production costs per bbl ($/throughput bbl) (4)
5.58

 
6.14

 
6.59

 
6.92

DD&A per bbl ($/throughput bbl)
2.97

 
1.98

 
2.82

 
2.15

 
 
 
 
 
 
 
 
Market Indices ($ per barrel)
 
 
 
 
 
 
 
4-1-2-1 Singapore Crack Spread (5)
$
6.22

 
$
6.42

 
$
6.55

 
$
6.40

Pacific Northwest 5-2-2-1 Index (6)
17.14

 
—

 
14.31

 
—

Wyoming 3-2-1 Index (7)
28.89

 
24.99

 
22.03

 
20.35

 
 
 
 
 
 
 
 
Crude Prices ($ per barrel)
 
 
 
 
 
 
 
Brent
$
68.47

 
$
74.92

 
$
66.16

 
$
71.08

WTI
59.91

 
67.91

 
57.42

 
65.42

ANS
69.40

 
75.12

 
66.76

 
71.23

Bakken Clearbrook
58.49

 
67.58

 
56.68

 
64.83

WCS Hardisty
47.35

 
49.59

 
45.82

 
43.19

Brent M1-M3
1.42

 
0.76

 
0.75

 
0.74

________________________________________________________
(1)
Previously reported logistics pipeline throughput volumes have been removed from the Operating Statistics table post-closing of the Washington Acquisition as we have determined that pipeline throughput is no longer a relevant indicator of logistics segment profitability given the low weighting of pipeline movements at the Washington refinery. Operating income (loss) per barrel has also been removed from the table because we do not believe it to be an indicative measure of our refineries’ profitability.
(2)
Feedstocks throughput and sales volumes per day for the Washington refinery for the three and six months ended June 30, 2019 are calculated based on the 91 and 171 -day periods for which we owned the Washington refinery in 2019, respectively. As such, the amounts for the total refining segment represent the sum of the Hawaii and Wyoming refineries’ throughput or sales volumes averaged over the three and six months ended June 30, 2019 plus the Washington refinery’s throughput or sales volumes averaged over the periods from April 1, 2019 to June 30, 2019 and January 11, 2019 to June 30, 2019 , respectively. The 2018 amounts for the total refining segment represent the sum of the Hawaii and Wyoming refineries’ throughput or sales volumes averaged over the three and six months ended June 30, 2018 .
(3)
Please see discussion of Adjusted Gross Margin below. We calculate Adjusted Gross Margin per barrel by dividing Adjusted Gross Margin by total refining throughput. Adjusted Gross Margin for our Washington Refinery is determined under the last-in, first-out (“LIFO”) inventory costing method. Adjusted Gross Margin for our other refineries is determined under the first-in, first-out (“FIFO”) inventory costing method.
(4)
Management uses production costs per barrel to evaluate performance and compare efficiency to other companies in the industry. There is a variety of ways to calculate production costs per barrel; different companies within the industry calculate it in different ways. We calculate production costs per barrel by dividing all direct production costs, which include the costs

34

to run the refinery, including personnel costs, repair and maintenance costs, insurance, utilities, and other miscellaneous costs, by total refining throughput. Our production costs are included in Operating expense (excluding depreciation) on our condensed consolidated statement of operations, which also includes costs related to our bulk marketing operations.
(5)
The profitability of our Hawaii business is heavily influenced by crack spreads in the Singapore market. This market reflects the closest liquid market alternative to source refined products for Hawaii. We believe the 4-1-2-1 Singapore crack spread (or four barrels of Brent crude oil converted into one barrel of gasoline, two barrels of distillates (diesel and jet fuel) and one barrel of fuel oil) best reflects a market indicator for our Hawaii operations.
(6)
We believe the Pacific Northwest 5-2-2-1 Index is the best market indicator for our operations in Tacoma, Washington. The Pacific Northwest 5-2-2-1 Index is computed by taking two parts gasoline (sub-octane), two parts middle distillates (ULSD and jet fuel), and one part fuel oil as created from five barrels of Alaskan North Slope (“ANS”) crude. The 2019 prices for the three and six months ended June 30, 2019 represent the price averaged over the periods from April 1, 2019 to June 30, 2019 and January 11, 2019 to June 30, 2019 , respectively.
(7)
The profitability of our Wyoming refinery is heavily influenced by crack spreads in nearby markets. We believe the Wyoming 3-2-1 Index is the best market indicator for our operations in Wyoming. The Wyoming 3-2-1 Index is computed by taking two parts gasoline and one part distillates (ULSD) as created from three barrels of West Texas Intermediate Crude Oil (“WTI”). Pricing is based 50% on applicable product pricing in Rapid City, South Dakota, and 50% on applicable product pricing in Denver, Colorado.
Below is a summary of key operating statistics for the retail segment for the three and six months ended June 30, 2019 and 2018 :
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Retail Segment
 
 
 
 
 
 
 
Retail sales volumes (thousands of gallons) (1)
31,810

 
31,489

 
61,544

 
53,679

________________________________________________________
(1)
Retail sales volumes for the three and six months ended June 30, 2018 include the 91 days and 100 days of retail sales volumes from Northwest Retail since its acquisition on March 23, 2018 , respectively. The 2019 amounts represent the sum of the Hawaii and Northwest Retail sales volumes for the three and six months ended June 30, 2019 .
Non-GAAP Performance Measures
Management uses certain financial measures to evaluate our operating performance that are considered non-GAAP financial measures. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP and our calculations thereof may not be comparable to similarly titled measures reported by other companies.
Adjusted Gross Margin
Adjusted Gross Margin is defined as (i) operating income (loss) plus operating expense (excluding depreciation); impairment expense; inventory valuation adjustments (which adjusts for timing differences to reflect the economics of our inventory financing agreements, including lower of cost or net realizable value adjustments, the impact of the embedded derivative repurchase obligations, and purchase price allocation adjustments); DD&A; RINs loss (gain) in excess of net obligation (see definition below); and unrealized losses (gains) on derivatives or (ii) revenues less cost of revenues (excluding depreciation) plus inventory valuation adjustments and unrealized losses (gains) on derivatives. We define cost of revenues (excluding depreciation) as the hydrocarbon-related costs of inventory sold, transportation costs of delivering product to customers, crude oil consumed in the refining process, costs to satisfy our RINs obligations, and certain hydrocarbon fees and taxes. Cost of revenues (excluding depreciation) also includes the unrealized gains (losses) on derivatives and inventory valuation adjustments that we exclude from Adjusted Gross Margin.
Beginning in the fourth quarter of 2018, Adjusted Net Income (loss) excludes RINs losses (gains) recorded in excess of our net RINs obligation (“RINs loss (gain) in excess of net obligation”). Our RINs obligations to comply with the Renewable Fuel Standard (“RFS”) are recorded as liabilities and measured at fair value as of the end of the reporting period. Our RINs assets, which include RINs purchased on the open market and RINs generated by blending biofuels as part of our refining process, are stated at the lower of cost or net realizable value (“NRV”) as of the end of the reporting period. During periods of rising RINs market prices, we recognize unrealized losses associated with the increase in the fair value of our RINs liabilities. Under GAAP,

35

we do not adjust the carrying value of our RINs assets because such assets are stated at the lower of cost or NRV. This adjustment represents the income statement effect of reflecting our RINs liability on a net basis, as the settlement of any open obligation would first be offset by RINs assets rather than purchasing such RINs obligations at market prices. We have recast the non-GAAP information for the three and six months ended June 30, 2018 to conform to the current period presentation.
Management believes Adjusted Gross Margin is an important measure of operating performance and uses Adjusted Gross Margin per barrel to evaluate operating performance and compare profitability to other companies in the industry and to industry benchmarks. Management believes Adjusted Gross Margin provides useful information to investors because it eliminates the gross impact of volatile commodity prices and adjusts for certain non-cash items and timing differences created by our inventory financing agreements and lower of cost or net realizable value adjustments to demonstrate the earnings potential of the business before other fixed and variable costs, which are reported separately in Operating expense (excluding depreciation) and Depreciation, depletion, and amortization .
Adjusted Gross Margin should not be considered an alternative to operating income (loss), net cash flows from operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted Gross Margin presented by other companies may not be comparable to our presentation since each company may define this term differently as they may include other manufacturing costs and depreciation expense in cost of revenues.
The following tables present a reconciliation of Adjusted Gross Margin to the most directly comparable GAAP financial measure, operating income (loss), on a historical basis, for selected segments, for the periods indicated (in thousands):
Three months ended June 30, 2019
Refining
 
Logistics
 
Retail
Operating income
$
33,185

 
$
16,371

 
$
12,026

Operating expense (excluding depreciation)
55,393

 
3,028

 
16,409

Depreciation, depletion, and amortization
14,613

 
3,989

 
2,532

Inventory valuation adjustment
(21,556
)
 
—

 
—

RINs loss (gain) in excess of net obligation
2,713

 
—

 
—

Unrealized loss on derivatives
14,379

 
—

 
—

Adjusted Gross Margin (1)
$
98,727

 
$
23,388

 
$
30,967

Three months ended June 30, 2018
Refining
 
Logistics
 
Retail
Operating income
$
27,082

 
$
8,650

 
$
7,857

Operating expense (excluding depreciation)
34,747

 
2,385

 
15,924

Depreciation, depletion, and amortization
7,475

 
1,673

 
2,697

Inventory valuation adjustment
(12,091
)
 
—

 
—

RINs loss (gain) in excess of net obligation
890

 
—

 
—

Unrealized gain on derivatives
5,496

 
—

 
—

Adjusted Gross Margin (1)
$
63,599

 
$
12,708

 
$
26,478

Six months ended June 30, 2019
Refining

Logistics

Retail
Operating income
$
47,548

 
$
28,790

 
$
22,090

Operating expense (excluding depreciation)
110,648


5,392


32,464

Depreciation, depletion, and amortization
28,491


7,885


4,906

Inventory valuation adjustment
(21,171
)
 
—

 
—

RINs loss (gain) in excess of net obligation
(1,799
)
 
—

 
—

Unrealized loss on derivatives
20,677


—


—

Adjusted Gross Margin (1)
$
184,394


$
42,067


$
59,460


36

Six months ended June 30, 2018
Refining
 
Logistics
 
Retail
Operating income
$
53,155

 
$
17,443

 
$
13,595

Operating expense (excluding depreciation)
72,096

 
4,207

 
27,763

Depreciation, depletion, and amortization
15,837

 
3,315

 
4,565

Inventory valuation adjustment
(23,978
)
 
—

 
—

RINs loss (gain) in excess of net obligation
890

 
—

 
—

Unrealized loss on derivatives
1,991

 
—

 
—

Adjusted Gross Margin (1)
$
119,991

 
$
24,965

 
$
45,923

_______________________________
(1) For the three and six months ended June 30, 2019 and 2018 , there was no impairment expense.
Adjusted Net Income and Adjusted EBITDA
Adjusted Net Income (Loss) is defined as Net income excluding changes in the value of contingent consideration and common stock warrants, acquisition and integration costs, unrealized (gains) losses on derivatives, debt extinguishment and commitment costs, release of tax valuation allowance, inventory valuation adjustment, severance costs, impairment expense, (gain) loss on sale of assets, and Par’s share of Laramie Energy’s unrealized loss (gain) on derivatives. Beginning in the fourth quarter of 2018, Adjusted Net Income (Loss) also excludes RINs loss (gain) in excess of net obligation (as defined in the Adjusted Gross Margin section above).
Adjusted EBITDA is Adjusted Net Income (Loss) excluding interest expense and financing costs, taxes, DD&A, and, equity losses (earnings) from Laramie Energy, excluding Par’s share of unrealized loss (gain) on derivatives.
We believe Adjusted Net Income and Adjusted EBITDA are useful supplemental financial measures that allow investors to assess:
•
The financial performance of our assets without regard to financing methods, capital structure, or historical cost basis;
•
The ability of our assets to generate cash to pay interest on our indebtedness; and
•
Our operating performance and return on invested capital as compared to other companies without regard to financing methods and capital structure.
Adjusted Net Income and Adjusted EBITDA should not be considered in isolation or as a substitute for operating income (loss), net income (loss), cash flows provided by operating, investing, and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. Adjusted Net Income and Adjusted EBITDA presented by other companies may not be comparable to our presentation as other companies may define these terms differently.

37

The following table presents a reconciliation of Adjusted Net Income and Adjusted EBITDA to the most directly comparable GAAP financial measure, Net income , on a historical basis for the periods indicated (in thousands):
 
Three Months Ended June 30,

Six Months Ended June 30,
 
2019

2018

2019

2018
Net income
$
28,169

 
$
16,178

 
$
89,261

 
$
31,363

Inventory valuation adjustment
(21,556
)
 
(12,091
)
 
(21,171
)
 
(23,978
)
RINs loss (gain) in excess of net obligation
2,713

 
890

 
(1,799
)
 
890

Unrealized loss on derivatives
14,335

 
5,496

 
20,677

 
1,991

Acquisition and integration costs
818

 
749

 
3,702

 
1,381

Debt extinguishment and commitment costs
3,690

 
—

 
9,186

 
—

Release of tax valuation allowance (1)
(2,318
)
 
—

 
(67,669
)
 
—

Change in value of common stock warrants
957

 
74

 
2,239

 
(671
)
Change in value of contingent consideration
—

 
—

 
—

 
10,500

Par’s share of Laramie Energy’s unrealized loss (gain) on derivatives (2)
(3,859
)
 
3,157

 
(5,090
)
 
1,169

Adjusted Net Income (3)
22,949

 
14,453

 
29,336

 
22,645

Depreciation, depletion, and amortization
21,919

 
12,775

 
42,876

 
25,812

Interest expense and financing costs, net
20,278

 
10,544

 
38,988

 
18,921

Equity losses (earnings) from Laramie Energy, LLC, excluding Par’s share of unrealized loss (gain) on derivatives
3,368

 
(805
)
 
4,298

 
(4,393
)
Income tax expense
513

 
492

 
1,095

 
526

Adjusted EBITDA
$
69,027


$
37,459

 
$
116,593

 
$
63,511

________________________________________
(1)
Included in Income tax benefit (expense) on our condensed consolidated statements of operations.
(2)
Included in Equity earnings (losses) from Laramie Energy, LLC on our condensed consolidated statements of operations.
(3)
For the three and six months ended June 30, 2019 and 2018 , there were no severance costs, impairment expense, or (gain) loss on sale of assets.
Factors Impacting Segment Results
Three months ended June 30, 2019 compared to the three months ended June 30, 2018
Refining. Operating income for our refining segment was $33.2 million for the three months ended June 30, 2019 , an increase of $6.1 million compared to operating income of $27.1 million for the three months ended June 30, 2018 . The increase in profitability was primarily driven by the contribution of the Washington refinery, offset by lower crack spreads and a challenging crude market at our Hawaii refinery. The Singapore crack spread decreased from $6.42 per barrel in the second quarter of 2018 to $6.22 per barrel in the second quarter of 2019 . The Washington refinery assets contributed operating income of approximately $19.6 million to the refining segment for the three months ended June 30, 2019 .
Logistics. Operating income for our logistics segment was $16.4 million for the three months ended June 30, 2019 , an increase of $7.7 million compared to operating income of $8.7 million for the three months ended June 30, 2018 . The increase is primarily due to a contribution of $5.3 million from the logistics assets acquired in connection with the Washington Acquisition for the three months ended June 30, 2019 and higher throughput in Hawaii due to the Hawaii Refinery Expansion .
Retail. Operating income for our retail segment was $12.0 million for the three months ended June 30, 2019 , an increase of $4.1 million compared to operating income of $7.9 million for the three months ended June 30, 2018 . The increase in operating income was primarily due to a 21% increase in fuel margins.

38

Six months ended June 30, 2019 compared to the six months ended June 30, 2018
Refining. Operating income for our refining segment was $47.5 million for the six months ended June 30, 2019 , a decrease of $5.7 million compared to operating income of $53.2 million for the six months ended June 30, 2018 . The decrease in profitability was primarily driven by RINs waivers received in 2018 and a lower of cost or net realizable inventory value charge of $13.4 million . These decreases were partially offset by the contribution provided by the Washington Acquisition and higher crack spreads in Hawaii and Wyoming. The Singapore crack spread increased 2% from $6.40 per barrel for the six months ended June 30, 2018 to $6.55 per barrel for the six months ended June 30, 2019 . The Washington refinery assets contributed an operating income of approximately $14.4 million to the refining segment for the period from January 11, 2019 to June 30, 2019 .
Logistics. Operating income for our logistics segment was $28.8 million for the six months ended June 30, 2019 , an increase of $11.4 million compared to operating income of $17.4 million for the six months ended June 30, 2018 . The increase is primarily due to a contribution of $8.8 million from the logistics assets acquired in connection with the Washington Acquisition for the period from January 11, 2019 to June 30, 2019 and higher throughput in Hawaii due to the Hawaii Refinery Expansion .
Retail. Operating income for our retail segment was $22.1 million for the six months ended June 30, 2019 , an increase of $8.5 million compared to operating income of $13.6 million for the six months ended June 30, 2018 . The increase in profitability is primarily due an increase in fuel margins of 12% and an increase in sales volumes of 15% primarily due to the contribution of Northwest Retail for two full quarters during 2019 compared to a 100 -day period of ownership during 2018.
Adjusted Gross Margin
Three months ended June 30, 2019 compared to the three months ended June 30, 2018
Refining. For the three months ended June 30, 2019 , our refining Adjusted Gross Margin was $98.7 million , an increase of $35.1 million compared to $63.6 million for the three months ended June 30, 2018 . The increase was primarily due to the Washington refinery, which contributed Adjusted Gross Margin of approximately $35.3 million to the refining segment for the three months ended June 30, 2019 .
Logistics. For the three months ended June 30, 2019 , our logistics Adjusted Gross Margin was $23.4 million , an increase of $10.7 million compared to $12.7 million for the three months ended June 30, 2018 . The increase was primarily driven by the contribution of the Washington assets of $7.4 million to the logistics segment for the three months ended June 30, 2019 and higher throughput in Hawaii due to the Hawaii Refinery Expansion .
Retail. For the three months ended June 30, 2019 , our retail Adjusted Gross Margin was $31.0 million , an increase of $4.5 million when compared to $26.5 million for the three months ended June 30, 2018 . The increase was primarily due to a 21% increase in fuel margins.
Six months ended June 30, 2019 compared to the six months ended June 30, 2018
Refining. For the six months ended June 30, 2019 , our refining Adjusted Gross Margin was $184.4 million , an increase of $64.4 million compared to $120.0 million for the six months ended June 30, 2018 . The increase in profitability was primarily driven by the Washington refinery, which contributed Adjusted Gross Margin of $61.7 million to the refining segment for the period from January 11, 2019 to June 30, 2019 . The Singapore crack spread increased 2% from $6.40 per barrel for the six months ended June 30, 2018 to $6.55 per barrel for the six months ended June 30, 2019 .
Logistics. For the six months ended June 30, 2019 , our logistics Adjusted Gross Margin was $42.1 million , an increase of $17.1 million compared to $25.0 million for the six months ended June 30, 2018 . The increase was primarily driven by the contribution of the Washington assets, the timing of bulk movements in Hawaii, and higher throughput in Hawaii due to the Hawaii Refinery Expansion . The Washington assets contributed Adjusted Gross Margin of $13.0 million to the logistics segment for the period from January 11, 2019 to June 30, 2019 .
Retail. For the six months ended June 30, 2019 , our retail Adjusted Gross Margin was $59.5 million , an increase of $13.6 million when compared to approximately $45.9 million for the six months ended June 30, 2018 . The increase was primarily due to an increase in fuel margins of 12% in Hawaii and an increase in sales volumes of 15% primarily due to the contribution of Northwest Retail for two full quarters during 2019 compared to a 100 -day period of ownership during 2018.


39

Discussion of Consolidated Results
Three months ended June 30, 2019 compared to the three months ended June 30, 2018
Revenues. For the three months ended June 30, 2019 , revenues were $1.4 billion , a $0.5 billion increase compared to $0.9 billion for the three months ended June 30, 2018 . The increase was primarily due to an increase of $551.8 million in third-party refining segment revenue as a result of the Washington Acquisition and a 50% increase in refined product sales volumes in Hawaii. The Washington Acquisition contributed third-party revenues of $309.8 million for the three months ended June 30, 2019 . These increases were slightly offset by Brent crude oil prices, which averaged $68.47 per barrel during the second quarter of 2019 compared to $74.92 per barrel during the second quarter of 2018.
Cost of Revenues (Excluding Depreciation). For the three months ended June 30, 2019 , cost of revenues (excluding depreciation) was $1.3 billion , a $0.6 billion increase compared to $0.7 billion for the three months ended June 30, 2018 . The increase was primarily driven by the Washington Acquisition and a 50% increase in refined product sales volumes in Hawaii. The Washington Acquisition contributed cost of revenues of approximately $267.3 million for the three months ended June 30, 2019 .
Operating Expense (Excluding Depreciation). For the three months ended June 30, 2019 , operating expense (excluding depreciation) was $74.8 million , a $21.7 million increase when compared to $53.1 million for the three months ended June 30, 2018 . The increase was primarily driven by operating expenses related to the Washington Acquisition and the Hawaii Refinery Expansion . The Washington Acquisition contributed operating expenses of $15.7 million and the Hawaii Refinery Expansion contributed operating expenses of $5.0 million for the three months ended June 30, 2019 .
Depreciation, Depletion, and Amortization .   For the three months ended June 30, 2019 , DD&A was $21.9 million , an increase of $9.1 million compared to $12.8 million for the three months ended June 30, 2018 . The increase was primarily due to the Washington Acquisition and the accelerated depreciation resulting from changes in the estimated useful lives of certain refinery equipment and storage tanks. The Washington Acquisition contributed DD&A of $7.4 million for the three months ended June 30, 2019 .
General and Administrative Expense (Excluding Depreciation).   For the three months ended June 30, 2019 , general and administrative expense (excluding depreciation) was approximately $11.4 million , a decrease of $1.5 million compared to $12.9 million for the three months ended June 30, 2018 . The decrease was primarily due to lower employee benefit costs.
Acquisition and Integration Costs.   For the three months ended June 30, 2019 , we incurred $0.8 million of costs primarily related to integration costs associated with the Washington Acquisition . For the three months ended June 30, 2018 , we incurred $0.7 million of costs primarily related to integration costs for the Northwest Retail Acquisition .
Interest Expense and Financing Costs, Net . For the three months ended June 30, 2019 , our interest expense and financing costs were $20.3 million , an increase of $9.8 million when compared to $10.5 million for the three months ended June 30, 2018 . The increase was primarily due to interest expense and financing costs of $6.2 million related to the new Term Loan B Facility entered into on January 11, 2019 , interest expense of $1.6 million on the Washington Refinery Intermediation Agreement , a net increase in our loss on interest rate derivatives of $1.5 million, and interest expense and financing costs of $0.5 million related to the Retail Property Term Loan entered into on March 29, 2019 . Please read Note 9—Debt to our condensed consolidated financial statements for further discussion on our indebtedness.
Change in Value of Common Stock Warrants . For the three months ended June 30, 2019 , the change in value of common stock warrants resulted in a loss of $1.0 million , a change of $0.9 million when compared to a loss of approximately $0.1 million for the three months ended June 30, 2018 . For the three months ended June 30, 2019 , our stock price increased from $17.81 per share as of March 31, 2019 to $20.52 per share as of June 30, 2019 , which resulted in an increase in the fair value of the common stock warrants. During the three months ended June 30, 2018 , our stock price increased from $17.17 per share as of March 31, 2018 to $17.38 per share as of June 30, 2018 , which resulted in an increase in the fair value of the common stock warrants.
Debt extinguishment and commitment costs. For the three months ended June 30, 2019 , our debt extinguishment costs were $3.7 million and represent extinguishment costs associated with the repurchase and cancellation of a portion of our outstanding 5.00% Convertible Senior Notes . Please read Note 9—Debt to our condensed consolidated financial statements for further discussion. No such costs were incurred for the three months ended June 30, 2018 .
Equity Earnings (Losses) From Laramie Energy, LLC . For the three months ended June 30, 2019 , equity earnings from Laramie Energy were $0.5 million , an increase of $2.9 million compared to equity losses of $2.4 million for the three months ended June 30, 2018 . The change in equity earnings was primarily due to Laramie Energy ’s loss on derivative instruments of $4.8 million for the three months ended June 30, 2018 , compared to a gain of $11.4 million for the same period in 2019, partially offset by a 17% decrease in sales prices.

40

During the second quarter of 2019, we conducted an impairment evaluation of our investment in Laramie Energy as a result of the significant decline in natural gas prices during the latter part of the second quarter of 2019. We concluded that the excess of the carrying value of our investment in Laramie Energy over its fair value was not other-than-temporary and that no impairment loss should be recorded on our statement of operations for the three months ended June 30, 2019. However, sustained downward pressure on natural gas prices could potentially be an indicator of a future other-than-temporary impairment of our investment in Laramie Energy. Please read Note 3—Investment in Laramie Energy, LLC for further information.
Income Taxes. For the three months ended June 30, 2019 , we recorded an income tax benefit of $1.8 million primarily driven by a $2.3 million benefit associated with a partial release of our valuation allowance in connection with the Washington Acquisition . For the three months ended June 30, 2018 , we recorded income tax expense of $0.5 million related primarily to deferred federal taxes for the period.
Six months ended June 30, 2019 compared to the six months ended June 30, 2018
Revenues. For the six months ended June 30, 2019 , revenues were $2.6 billion , a $1.0 billion increase compared to $1.6 billion for the six months ended June 30, 2018 . The increase was primarily due to an increase of $958.6 million in third-party revenues at our refining segment primarily as a result of the Washington Acquisition and increased volumes in Hawaii related to the Hawaii Refinery Expansion . The Washington Acquisition contributed third-party revenues of $555.6 million for the period from January 11, 2019 to June 30, 2019 . Refined product sales volumes in Hawaii increased 42% from 81.4 Mbpd in the six months ended June 30, 2018 to 115.2 Mbpd in the six months ended June 30, 2019 . Average Brent prices decreased from $71.08 per barrel in the six months ended June 30, 2018 to $66.16 per barrel in the six months ended June 30, 2019 . Revenues in our retail segment increased $22.3 million primarily due to the acquisition of Northwest Retail, offset by a 4% decrease in fuel sales prices.
Cost of Revenues (Excluding Depreciation). For the six months ended June 30, 2019 , cost of revenues (excluding depreciation) was $2.3 billion , a $0.9 billion increase compared to $1.4 billion for the six months ended June 30, 2018 . The increase was primarily due to the Washington Acquisition and a 42% increase in refined product sales volumes in Hawaii. The Washington Acquisition contributed cost of revenues of approximately $492.8 million for the period from January 11, 2019 to June 30, 2019 .
Operating Expense (Excluding Depreciation). For the six months ended June 30, 2019 , operating expense (excluding depreciation) was $148.5 million , an increase of $44.4 million compared to $104.1 million for the six months ended June 30, 2018 . The increase was primarily due to the Washington Acquisition , Hawaii Refinery Expansion , and Northwest Retail Acquisition . The Washington Acquisition contributed operating expenses of $30.2 million for the period from January 11, 2019 to June 30, 2019 . The Hawaii Refinery Expansion contributed operating expenses of $9.8 million for the six months ended June 30, 2019 . Northwest Retail contributed operating expenses of $9.5 million for the full six months ended June 30, 2019 as compared to $5.4 million for the 100 -day period of ownership from March 23, 2018 to June 30, 2018.
Depreciation, Depletion, and Amortization .   For the six months ended June 30, 2019 , DD&A was $42.9 million , an increase of $17.1 million when compared to $25.8 million for the six months ended June 30, 2018 . The increase was primarily due to DD&A on assets acquired as part of the Washington Acquisition and the accelerated depreciation of assets to be replaced during the 2020 Wyoming refinery turnaround.
General and Administrative Expense (Excluding Depreciation).   For the six months ended June 30, 2019 , general and administrative expense (excluding depreciation) was $23.0 million , which is relatively consistent with $24.1 million for the six months ended June 30, 2018 .
Acquisition and Integration Costs.   For the six months ended June 30, 2019 , we incurred $3.7 million of acquisition and integration costs primarily related to the Washington Acquisition and the Hawaii Refinery Expansion . For the six months ended June 30, 2018 , we incurred $1.4 million of acquisition and integration costs related to the Northwest Retail Acquisition .
Interest Expense and Financing Costs, Net . For the six months ended June 30, 2019 , our interest expense and financing costs were $39.0 million , an increase of $20.1 million when compared to $18.9 million for the six months ended June 30, 2018 . The increase was primarily due to interest expense and financing costs of $12.0 million related to the new Term Loan B Facility entered into on January 11, 2019 , interest expense of $3.0 million on the Washington Refinery Intermediation Agreement , increased interest and financing costs of $1.0 million associated with J. Aron deferred payments, a net increase in our loss on interest rate derivatives of $2.8 million, and interest expense and financing costs of $1.2 million related to the Par Pacific Term Loan entered into on January 9, 2019 and replaced by the Retail Property Term Loan entered into on March 29, 2019 . Please read Note 9—Debt to our condensed consolidated financial statements for further discussion on our indebtedness.
Change in Value of Common Stock Warrants . For the six months ended June 30, 2019 , the change in value of common stock warrants resulted in a loss of $2.2 million , a change of $2.9 million when compared to a gain of $0.7 million for the six months ended June 30, 2018 . For the six months ended June 30, 2019 , our stock price increased from $14.18 per share as of

41

December 31, 2018 to $20.52 per share as of June 30, 2019 , which resulted in an increase in the fair value of the common stock warrants. During the six months ended June 30, 2018 , our stock price decreased from $19.28 per share on December 31, 2017 to $17.38 per share on June 30, 2018 , which resulted in a decrease in the value of the common stock warrants.
Change in Value of Contingent Consideration . For the six months ended June 30, 2018 , the change in the value of our contingent consideration liability resulted in a loss of $10.5 million as a result of the settlement agreement reached with Tesoro. As of December 31, 2018 and for the six months ended June 30, 2019 , there was no contingent consideration liability.
Debt Extinguishment and Commitment Costs. For the six months ended June 30, 2019 , our debt extinguishment and commitment costs were $9.2 million and primarily represent the commitment and other fees associated with the financing of the Washington Acquisition and the extinguishment costs associated with the repurchase and cancellation of a portion of our outstanding 5.00% Convertible Senior Notes . Please read Note 9—Debt to our condensed consolidated financial statements for further discussion. No such costs were incurred for the six months ended June 30, 2018 .
Equity Earnings (Losses) from Laramie Energy, LLC . For the six months ended June 30, 2019 , equity earnings from Laramie Energy were $0.8 million , a decrease of $2.4 million compared to $3.2 million for the six months ended June 30, 2018 . The change was primarily due to higher interest expense associated with Laramie Energy's revolving credit facility and a loss on derivative instruments of $0.3 million for the six months ended June 30, 2018 , compared to a loss on derivative instruments of $1.0 million for the same period in 2019.
During the second quarter of 2019, we conducted an impairment evaluation of our investment in Laramie Energy as a result of the significant decline in natural gas prices during the latter part of the second quarter of 2019. We concluded that the excess of the carrying value of our investment in Laramie Energy over its fair value was not other than temporary and that no impairment loss should be recorded on our statement of operations for the six months ended June 30, 2019. However, sustained downward pressure on natural gas prices could potentially be an indicator of a future other-than-temporary impairment of our investment in Laramie Energy. Please read Note 3—Investment in Laramie Energy, LLC for further information.
Income Taxes. For the six months ended June 30, 2019 , we recorded an income tax benefit of $66.6 million primarily driven by a $67.7 million benefit associated with a partial release of our valuation allowance in connection with the Washington Acquisition . For the six months ended June 30, 2018 , we recorded income tax expense of $0.5 million primarily due to deferred federal taxes.
Consolidating Condensed Financial Information
On December 21, 2017 , Par Petroleum, LLC (the “Issuer”) issued its 7.75% Senior Secured Notes due 2025 in a private offering under Rule 144A and Regulation S of the Securities Act. On January 11, 2019, the Issuers entered into a term loan and guaranty agreement with Goldman Sachs Bank USA, as administrative agent, and the lenders party thereto with respect to a $250.0 million term loan (the “ Term Loan B ”). The 7.75% Senior Secured Notes and the Term Loan B were co-issued by Par Petroleum Finance Corp. (together with the Issuer, the “Issuers”), which has no independent assets or operations. The 7.75% Senior Secured Notes and Term Loan B are guaranteed on a senior unsecured basis only as to payment of principal and interest by Par Pacific Holdings, Inc. (the “Parent”) and are guaranteed on a senior secured basis by all of the subsidiaries of Par Petroleum, LLC (other than Par Petroleum Finance Corp.).
The following supplemental condensed consolidating financial information reflects (i) the Parent’s separate accounts, (ii) Par Petroleum, LLC and its consolidated subsidiaries’ accounts, (iii) the accounts of subsidiaries of the Parent that are not guarantors of the 7.75% Senior Secured Notes or Term Loan B and consolidating adjustments and eliminations, and (iv) the Parent’s consolidated accounts for the dates and periods indicated. For purposes of the following condensed consolidating information, the Parent’s investment in its subsidiaries is accounted for under the equity method of accounting (dollar amounts in thousands).

42

 
As of June 30, 2019
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
11,062

 
$
94,865

 
$
263

 
$
106,190

Restricted cash
743

 
1,704

 
—

 
2,447

Trade accounts receivable
—

 
254,666

 
18

 
254,684

Inventories
—

 
573,879

 
—

 
573,879

Prepaid and other current assets
5,388

 
8,144

 
301

 
13,833

Due from related parties
68,873

 
—

 
(68,873
)
 
—

Total current assets
86,066

 
933,258

 
(68,291
)
 
951,033

Property and equipment
 
 
 
 
 
 
 

Property, plant, and equipment
19,952

 
1,048,675

 
37,792

 
1,106,419

Less accumulated depreciation, depletion, and amortization
(10,624
)
 
(133,570
)
 
(2,057
)
 
(146,251
)
Property and equipment, net
9,328

 
915,105

 
35,735

 
960,168

Long-term assets
 
 
 
 
 
 
 

Operating lease assets
4,415

 
405,071

 
(20,439
)
 
389,047

Investment in Laramie Energy, LLC
—

 
—

 
137,448

 
137,448

Investment in subsidiaries
715,655

 
—

 
(715,655
)
 
—

Intangible assets, net
—

 
22,617

 
—

 
22,617

Goodwill
—

 
192,107

 
2,598

 
194,705

Other long-term assets
1,405

 
15,987

 
—

 
17,392

Total assets
$
816,869

 
$
2,484,145

 
$
(628,604
)
 
$
2,672,410

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 

Current liabilities
 
 
 
 
 
 
 

Current maturities of long-term debt
$
—

 
$
10,806

 
$
1,489

 
$
12,295

Obligations under inventory financing agreements
—

 
636,489

 
—

 
636,489

Accounts payable
2,485

 
142,146

 
1,633

 
146,264

Deferred revenue
—

 
8,063

 
16

 
8,079

Accrued taxes
—

 
32,187

 
24

 
32,211

Operating lease liabilities
429

 
62,926

 
(3,648
)
 
59,707

Other accrued liabilities
3,747

 
78,305

 
(2,904
)
 
79,148

Due to related parties
64,936

 
48,936

 
(113,872
)
 
—

Total current liabilities
71,597

 
1,019,858

 
(117,262
)
 
974,193

Long-term liabilities
 
 
 
 
 
 
 

Long-term debt, net of current maturities
71,621

 
517,796

 
42,384

 
631,801

Common stock warrants
7,246

 
—

 
—

 
7,246

Finance lease obligations
430

 
6,071

 
—

 
6,501

Operating lease obligations
5,954

 
343,302

 
(16,791
)
 
332,465

Other liabilities
458

 
138,405

 
(78,222
)
 
60,641

Total liabilities
157,306

 
2,025,432

 
(169,891
)
 
2,012,847

Commitments and contingencies
 
 
 
 
 
 
 
Stockholders’ equity
 
 
 
 
 
 
 
Preferred stock, $0.01 par value: 3,000,000 shares authorized, none issued
—

 
—

 
—

 
—

Common stock, $0.01 par value; 500,000,000 shares authorized and 51,024,186 shares issued
510

 
—

 
—

 
510

Additional paid-in capital
675,870

 
309,657

 
(309,657
)
 
675,870

Accumulated earnings (deficit)
(19,490
)
 
145,553

 
(145,553
)
 
(19,490
)
Accumulated other comprehensive income
2,673

 
3,503

 
(3,503
)
 
2,673

Total stockholders’ equity
659,563

 
458,713

 
(458,713
)
 
659,563

Total liabilities and stockholders’ equity
$
816,869

 
$
2,484,145

 
$
(628,604
)
 
$
2,672,410




43

 
As of December 31, 2018
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
28,701

 
$
46,062

 
$
313

 
$
75,076

Restricted cash
743

 
—

 
—

 
743

Trade accounts receivable
—

 
159,630

 
708

 
160,338

Inventories
—

 
322,065

 
—

 
322,065

Prepaid and other current assets
11,711

 
17,048

 
(389
)
 
28,370

Due from related parties
43,928

 
—

 
(43,928
)
 
—

Total current assets
85,083

 
544,805

 
(43,296
)
 
586,592

Property and equipment
 
 
 
 
 
 
 

Property, plant, and equipment
18,939

 
630,429

 
400

 
649,768

Less accumulated depreciation and depletion
(9,034
)
 
(102,180
)
 
(293
)
 
(111,507
)
Property and equipment, net
9,905

 
528,249

 
107

 
538,261

Long-term assets
 
 
 
 
 
 
 

Investment in Laramie Energy, LLC
—

 
—

 
136,656

 
136,656

Investment in subsidiaries
638,975

 
—

 
(638,975
)
 
—

Intangible assets, net
—

 
23,947

 
—

 
23,947

Goodwill
—

 
150,799

 
2,598

 
153,397

Other long-term assets
3,334

 
18,547

 
—

 
21,881

Total assets
$
737,297

 
$
1,266,347

 
$
(542,910
)
 
$
1,460,734

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 

Current liabilities
 
 
 
 
 
 
 

Current maturities of long-term debt
$
—

 
$
33

 
$
—

 
$
33

Obligations under inventory financing agreements
—

 
373,882

 
—

 
373,882

Accounts payable
8,312

 
44,997

 
1,478

 
54,787

Deferred revenue
—

 
6,681

 
—

 
6,681

Accrued taxes
—

 
17,206

 
50

 
17,256

Other accrued liabilities
12,349

 
43,773

 
(1,560
)
 
54,562

Due to related parties
96,963

 
9,848

 
(106,811
)
 
—

Total current liabilities
117,624

 
496,420

 
(106,843
)
 
507,201

Long-term liabilities
 
 
 
 
 
 
 

Long-term debt, net of current maturities
100,411

 
292,196

 
—

 
392,607

Common stock warrants
5,007

 
—

 
—

 
5,007

Long-term capital lease obligations
475

 
5,648

 
—

 
6,123

Other liabilities
1,451

 
41,040

 
(5,024
)
 
37,467

Total liabilities
224,968

 
835,304

 
(111,867
)
 
948,405

Commitments and contingencies
 
 
 
 
 
 
 
Stockholders’ equity
 
 
 
 
 
 
 
Preferred stock, $0.01 par value: 3,000,000 shares authorized, none issued
—

 
—

 
—

 
—

Common stock, $0.01 par value; 500,000,000 shares authorized and 46,983,924 shares issued
470

 
—

 
—

 
470

Additional paid-in capital
617,937

 
345,825

 
(345,825
)
 
617,937

Accumulated earnings (deficit)
(108,751
)
 
81,715

 
(81,715
)
 
(108,751
)
Accumulated other comprehensive income
2,673

 
3,503

 
(3,503
)
 
2,673

Total stockholders’ equity
512,329

 
431,043

 
(431,043
)
 
512,329

Total liabilities and stockholders’ equity
$
737,297

 
$
1,266,347

 
$
(542,910
)
 
$
1,460,734


44

 
Three Months Ended June 30, 2019
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
Revenues
$
—

 
$
1,409,407

 
$
2

 
$
1,409,409

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Cost of revenues (excluding depreciation)
—

 
1,251,842

 
—

 
1,251,842

Operating expense (excluding depreciation)
—

 
75,224

 
(394
)
 
74,830

Depreciation, depletion, and amortization
724

 
21,151

 
44

 
21,919

Loss (gain) on sale of assets, net
—

 
(37,382
)
 
37,382

 
—

General and administrative expense (excluding depreciation)
4,900

 
6,409

 
70

 
11,379

Acquisition and integration costs
1

 
817

 
—

 
818

Total operating expenses
5,625

 
1,318,061

 
37,102

 
1,360,788

 
 
 
 
 
 
 
 
Operating income (loss)
(5,625
)
 
91,346

 
(37,100
)
 
48,621

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Interest expense and financing costs, net
(5,617
)
 
(12,662
)
 
(1,999
)
 
(20,278
)
Debt extinguishment and commitment costs
(3,690
)
 
—

 
—

 
(3,690
)
Other income (expense), net
2,128

 
50

 
(1
)
 
2,177

Change in value of common stock warrants
(957
)
 
—

 
—

 
(957
)
Equity earnings (losses) from subsidiaries
41,930

 
—

 
(41,930
)
 
—

Equity earnings from Laramie Energy, LLC
—

 
—

 
491

 
491

Total other income (expense), net
33,794

 
(12,612
)
 
(43,439
)
 
(22,257
)
 
 
 
 
 
 
 
 
Income (loss) before income taxes
28,169

 
78,734

 
(80,539
)
 
26,364

Income tax benefit  (expense)
—

 
(16,869
)
 
18,674

 
1,805

Net income (loss)
$
28,169

 
$
61,865

 
$
(61,865
)
 
$
28,169

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
(2,772
)
 
$
71,474

 
$
325

 
$
69,027


45

 
Three Months Ended June 30, 2018
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
Revenues
$
—

 
$
856,380

 
$
16

 
$
856,396

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Cost of revenues (excluding depreciation)
—

 
747,924

 
—

 
747,924

Operating expense (excluding depreciation)
—

 
53,056

 
4

 
53,060

Depreciation, depletion, and amortization
864

 
11,896

 
15

 
12,775

General and administrative expense (excluding depreciation)
5,156

 
7,670

 
79

 
12,905

Acquisition and integration costs
749

 
—

 
—

 
749

Total operating expenses
6,769

 
820,546

 
98

 
827,413

 
 
 
 
 
 
 
 
Operating income (loss)
(6,769
)
 
35,834

 
(82
)
 
28,983

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Interest expense and financing costs, net
(2,686
)
 
(7,858
)
 
—

 
(10,544
)
Other income (expense), net
668

 
(5
)
 
(6
)
 
657

Change in value of common stock warrants
(74
)
 
—

 
—

 
(74
)
Equity earnings (losses) from subsidiaries
25,039

 
—

 
(25,039
)
 
—

Equity earnings from Laramie Energy, LLC
—

 
—

 
(2,352
)
 
(2,352
)
Total other income (expense), net
22,947

 
(7,863
)
 
(27,397
)
 
(12,313
)
 
 
 
 
 
 
 
 
Income (loss) before income taxes
16,178

 
27,971

 
(27,479
)
 
16,670

Income tax benefit  (expense)
—

 
(5,264
)
 
4,772

 
(492
)
Net income (loss)
$
16,178

 
$
22,707

 
$
(22,707
)
 
$
16,178

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
(4,488
)
 
$
42,020

 
$
(73
)
 
$
37,459



46

 
Six Months Ended June 30, 2019
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
Revenues
$
—

 
$
2,600,733

 
$
11

 
$
2,600,744

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Cost of revenues (excluding depreciation)
—

 
2,312,574

 
—

 
2,312,574

Operating expense (excluding depreciation)
—

 
148,898

 
(394
)
 
148,504

Depreciation, depletion, and amortization
1,476

 
41,350

 
50

 
42,876

Loss (gain) on sale of assets, net
—

 
(37,382
)
 
37,382

 
—

General and administrative expense (excluding depreciation)
9,894

 
13,091

 
59

 
23,044

Acquisition and integration expense
3

 
3,699

 
—

 
3,702

Total operating expenses
11,373

 
2,482,230

 
37,097

 
2,530,700

 
 
 
 
 
 
 
 
Operating income (loss)
(11,373
)
 
118,503

 
(37,086
)
 
70,044

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Interest expense and financing costs, net
(5,999
)
 
(30,990
)
 
(1,999
)
 
(38,988
)
Debt extinguishment and commitment costs
(3,832
)
 
(5,354
)
 
—

 
(9,186
)
Other income (expense), net
2,235

 
30

 
(1
)
 
2,264

Change in value of common stock warrants
(2,239
)
 
—

 
—

 
(2,239
)
Equity earnings (losses) from subsidiaries
110,619

 
—

 
(110,619
)
 
—

Equity earnings from Laramie Energy, LLC
—

 
—

 
792

 
792

Total other income (expense), net
100,784

 
(36,314
)
 
(111,827
)
 
(47,357
)
 
 
 
 
 
 
 
 
Income (loss) before income taxes
89,411

 
82,189

 
(148,913
)
 
22,687

Income tax benefit  (expense)
(150
)
 
(18,351
)
 
85,075

 
66,574

Net income (loss)
$
89,261

 
$
63,838

 
$
(63,838
)
 
$
89,261

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
(7,659
)
 
$
123,907

 
$
345

 
$
116,593



47

 
Six Months Ended June 30, 2018
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
Revenues
$
—

 
$
1,621,307

 
$
528

 
$
1,621,835

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Cost of revenues (excluding depreciation)
—

 
1,409,503

 
320

 
1,409,823

Operating expense (excluding depreciation)
—

 
104,066

 
4

 
104,070

Depreciation, depletion, and amortization
1,977

 
23,815

 
20

 
25,812

General and administrative expense (excluding depreciation)
10,381

 
13,575

 
154

 
24,110

Acquisition and integration expense
1,180

 
201

 
—

 
1,381

Total operating expenses
13,538

 
1,551,160

 
498

 
1,565,196

 
 
 
 
 
 
 
 
Operating income (loss)
(13,538
)
 
70,147

 
30

 
56,639

 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
Interest expense and financing costs, net
(5,340
)
 
(13,581
)
 
—

 
(18,921
)
Other income (expense), net
823

 
(35
)
 
(12
)
 
776

Change in value of common stock warrants
671

 
—

 
—

 
671

Change in value of contingent consideration
—

 
(10,500
)
 
—

 
(10,500
)
Equity earnings (losses) from subsidiaries
48,747

 
—

 
(48,747
)
 
—

Equity earnings from Laramie Energy, LLC
—

 
—

 
3,224

 
3,224

Total other income (expense), net
44,901

 
(24,116
)
 
(45,535
)
 
(24,750
)
 
 
 
 
 
 
 
 
Income (loss) before income taxes
31,363

 
46,031

 
(45,505
)
 
31,889

Income tax benefit  (expense)
—

 
(11,017
)
 
10,491

 
(526
)
Net income (loss)
$
31,363

 
$
35,014

 
$
(35,014
)
 
$
31,363

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
(9,558
)
 
$
73,031

 
$
38

 
$
63,511



48

Non-GAAP Financial Measures
Adjusted EBITDA for the supplemental consolidating condensed financial information, which is segregated at the “Parent Guarantor,” “Issuer and Subsidiaries,” and “Non-Guarantor Subsidiaries and Eliminations” levels, is calculated in the same manner as for the Par Pacific Holdings, Inc. Adjusted EBITDA calculations. See “Results of Operations — Non-GAAP Performance Measures — Adjusted Net Income (Loss) and Adjusted EBITDA” above.
The following tables present a reconciliation of Adjusted EBITDA to the most directly comparable GAAP financial measure, net income (loss), on a historical basis for the periods indicated (in thousands):
 
Three Months Ended June 30, 2019
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
Net income (loss)
$
28,169

 
$
61,865

 
$
(61,865
)
 
$
28,169

Inventory valuation adjustment
—

 
(21,556
)
 
—

 
(21,556
)
RINs loss (gain) in excess of net obligation
—

 
2,713

 
—

 
2,713

Unrealized loss (gain) on derivatives
—

 
14,335

 
—

 
14,335

Acquisition and integration costs
1

 
817

 
—

 
818

Debt extinguishment and commitment costs
3,690

 
—

 
—

 
3,690

Increase in (release of) tax valuation allowance (1)
—

 
—

 
(2,318
)
 
(2,318
)
Change in value of common stock warrants
957

 
—

 
—

 
957

Loss (gain) on sale of assets, net
—

 
(37,382
)
 
37,382

 
—

Par ’ s share of Laramie Energy ’ s unrealized loss (gain) on derivatives (2)
—

 
—

 
(3,859
)
 
(3,859
)
Depreciation, depletion, and amortization
724

 
21,151

 
44

 
21,919

Interest expense and financing costs, net
5,617

 
12,662

 
1,999

 
20,278

Equity losses from Laramie Energy, LLC, excluding Par ’ s share of unrealized loss (gain) on derivatives
—

 
—

 
3,368

 
3,368

Equity losses (income) from subsidiaries
(41,930
)
 
—

 
41,930

 
—

Income tax expense (benefit)
—

 
16,869

 
(16,356
)
 
513

Adjusted EBITDA (3)
$
(2,772
)
 
$
71,474

 
$
325

 
$
69,027


49

 
Three Months Ended June 30, 2018
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
Net income (loss)
$
16,178

 
$
22,707

 
$
(22,707
)
 
$
16,178

Inventory valuation adjustment
—

 
(12,091
)
 
—

 
(12,091
)
RINs loss (gain) in excess of net obligation
—

 
890

 
—

 
890

Unrealized loss (gain) on derivatives
—

 
5,496

 
—

 
5,496

Acquisition and integration costs
749

 
—

 
—

 
749

Change in value of common stock warrants
74

 
—

 
—

 
74

Par ’ s share of Laramie Energy ’ s unrealized loss (gain) on derivatives (2)
—

 
—

 
3,157

 
3,157

Depreciation, depletion, and amortization
864

 
11,896

 
15

 
12,775

Interest expense and financing costs, net
2,686

 
7,858

 
—

 
10,544

Equity (earnings) from Laramie Energy, LLC, excluding Par ’ s share of unrealized loss (gain) on derivatives
—

 
—

 
(805
)
 
(805
)
Equity losses (income) from subsidiaries
(25,039
)
 
—

 
25,039

 
—

Income tax expense (benefit)
—

 
5,264

 
(4,772
)
 
492

Adjusted EBITDA (3)
$
(4,488
)
 
$
42,020

 
$
(73
)
 
$
37,459


 
Six Months Ended June 30, 2019
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
Net income (loss)
$
89,261

 
$
63,838

 
$
(63,838
)
 
$
89,261

Inventory valuation adjustment
—

 
(21,171
)
 
—

 
(21,171
)
RINs loss (gain) in excess of net obligation
—

 
(1,799
)
 
—

 
(1,799
)
Unrealized loss (gain) on derivatives
—

 
20,677

 
—

 
20,677

Acquisition and integration costs
3

 
3,699

 
—

 
3,702

Debt extinguishment and commitment costs
3,832

 
5,354

 
—

 
9,186

Increase in (release of) tax valuation allowance (1)
—

 
—

 
(67,669
)
 
(67,669
)
Change in value of common stock warrants
2,239

 
—

 
—

 
2,239

Loss (gain) on sale of assets, net
—

 
(37,382
)
 
37,382

 
—

Par ’ s share of Laramie Energy ’ s unrealized loss (gain) on derivatives (2)
—

 
—

 
(5,090
)
 
(5,090
)
Depreciation, depletion, and amortization
1,476

 
41,350

 
50

 
42,876

Interest expense and financing costs, net
5,999

 
30,990

 
1,999

 
38,988

Equity losses (earnings) from Laramie Energy, LLC, excluding Par ’ s share of unrealized loss (gain) on derivatives
—

 
—

 
4,298

 
4,298

Equity losses (income) from subsidiaries
(110,619
)
 
—

 
110,619

 
—

Income tax expense (benefit)
150

 
18,351

 
(17,406
)
 
1,095

Adjusted EBITDA (3)
$
(7,659
)
 
$
123,907

 
$
345

 
$
116,593


50

 
Six Months Ended June 30, 2018
 
Parent Guarantor
 
Issuer and Subsidiaries
 
Non-Guarantor Subsidiaries and Eliminations
 
Par Pacific Holdings, Inc. and Subsidiaries
Net income (loss)
$
31,363

 
$
35,014

 
$
(35,014
)
 
$
31,363

Inventory valuation adjustment
—

 
(23,978
)
 
—

 
(23,978
)
RINs loss (gain) in excess of net obligation
—

 
890

 
—

 
890

Unrealized loss (gain) on derivatives
—

 
1,991

 
—

 
1,991

Acquisition and integration costs
1,180

 
201

 
—

 
1,381

Change in value of common stock warrants
(671
)
 
—

 
—

 
(671
)
Change in value of contingent consideration
—

 
10,500

 
—

 
10,500

Par ’ s share of Laramie Energy ’ s unrealized loss (gain) on derivatives (2)
—

 
—

 
1,169

 
1,169

Depreciation, depletion, and amortization
1,977

 
23,815

 
20

 
25,812

Interest expense and financing costs, net
5,340

 
13,581

 
—

 
18,921

Equity losses (earnings) from Laramie Energy, LLC, excluding Par’s share of unrealized loss (gain) on derivatives
—

 
—

 
(4,393
)
 
(4,393
)
Equity losses (income) from subsidiaries
(48,747
)
 
—

 
48,747

 
—

Income tax expense (benefit)
—

 
11,017

 
(10,491
)
 
526

Adjusted EBITDA (3)
$
(9,558
)
 
$
73,031

 
$
38

 
$
63,511

________________________________________
(1)
Included in Income tax benefit (expense) on our condensed consolidated statements of operations.
(2)
Included in Equity earnings (losses) from Laramie Energy, LLC on our condensed consolidated statements of operations.
(3)
For the three and six months ended June 30, 2019 and 2018 , there were no severance costs or impairment expense.
Liquidity and Capital Resources
Our liquidity and capital requirements are primarily a function of our debt maturities and debt service requirements, and contractual obligations, capital expenditures, and working capital needs. Examples of working capital needs include purchases and sales of commodities and associated margin and collateral requirements, facility maintenance costs, and other costs such as payroll. Our primary sources of liquidity are cash flows from operations, cash on hand, amounts available under our credit agreements, and access to capital markets.
Our liquidity position as of  June 30, 2019 was $175.0 million and consisted of $163.7 million at Par Petroleum, LLC and subsidiaries, $11.2 million at Par Pacific Holdings, and $0.1 million at all our other subsidiaries.
As of June 30, 2019 , we had access to the J. Aron Deferred Payment Arrangement, the ABL Credit Facility , the MLC receivable advances , and cash on hand of $106.2 million . In addition, we have the Supply and Offtake Agreements with J. Aron and the Washington Refinery Intermediation Agreement , which are used to finance the majority of the inventory at our Hawaii and Washington refineries, respectively. Generally, the primary uses of our capital resources have been in the operations of our refining and retail segments, payments related to acquisitions, and to repay or refinance indebtedness.
We believe our cash flows from operations and available capital resources will be sufficient to meet our current capital expenditures, working capital, and debt service requirements for the next 12 months. We may seek to raise additional debt or equity capital to fund any other significant changes to our business or to refinance existing debt. We cannot offer any assurances that such capital will be available in sufficient amounts or at an acceptable cost.
We may from time to time seek to retire or repurchase our outstanding 5.00% Convertible Senior Notes or 7.75% Senior Secured Notes through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.

51

Cash Flows
The following table summarizes cash activities for the six months ended June 30, 2019 and 2018 (in thousands):
 
Six Months Ended June 30,
 
2019
 
2018
Net cash provided by operating activities
$
24,237

 
$
31,327

Net cash used in investing activities
(312,281
)
 
(91,191
)
Net cash provided by financing activities
320,862

 
24,233

Net cash  provided by  operating activities was approximately $24.2 million for the six months ended June 30, 2019 , which resulted from net income of approximately $89.3 million and non-cash charges to operations of approximately $15.6 million , offset by net cash used for changes in operating assets and liabilities of approximately $80.7 million . The change in our operating assets and liabilities for the  six months  ended  June 30, 2019  was primarily due to increased inventories and trade receivables related to higher inventory volumes at our Washington refinery and higher sales volumes in Hawaii primarily from the Hawaii Refinery Expansion , respectively. Net cash provided by operating activities was approximately $31.3 million for the six months ended June 30, 2018 , which resulted from net income of approximately $31.4 million and non-cash charges to operations of approximately $33.5 million , offset by net cash used for changes in operating assets and liabilities of approximately $33.6 million .
For the six months ended June 30, 2019 , net cash used in investing activities was approximately $312.3 million and primarily related to $274.3 million of net cash consideration paid for the Washington Acquisition and additions to property and equipment totaling approximately $41.4 million . Net cash used in investing activities was approximately $91.2 million for the six months ended June 30, 2018 and primarily related to $74.3 million paid for the Northwest Retail Acquisition and additions to property and equipment totaling approximately $17.7 million .
Net cash provided by financing activities for the six months ended June 30, 2019 was approximately $320.9 million , which consisted primarily of net debt borrowings of approximately $270.0 million and net borrowings associated with the J. Aron deferred payment and MLC receivable advances of approximately $71.4 million , offset by the payments of $13.4 million in deferred loan costs and $7.1 million in commitment and other fees related to the funding for the Washington Acquisition and the financing costs related to the repurchase and cancellation of a portion of our 5.00% Convertible Senior Notes . Net cash provided by financing activities for the six months ended June 30, 2018 was approximately $24.2 million , which consisted primarily of net debt repayments of approximately $5.3 million and net borrowings associated with the J. Aron deferred payment of approximately $30.2 million .
Capital Expenditures
Our capital expenditures for the six months ended June 30, 2019 totaled approximately $41.4 million and were primarily related to the second phase of our diesel hydrotreater construction at our Hawaii refinery, the first phase of a project to allow for processing and storage of renewable fuels at our Washington refinery, equipment purchases and pre-engineering work in preparation for the 2020 turnarounds at our refineries, construction of the tie-in connecting our SPM to the IES crude oil pipeline for Hawaii logistics, and scheduled maintenance. Our capital expenditure budget for 2019 ranges from $100 million to $110 million and primarily relates to the continuation of those projects.
We also continue to seek strategic investments in business opportunities, but the amount and timing of those investments are not predictable.
Commitments and Contingencies
Supply and Offtake Agreements. On June 1, 2015, we entered into the Supply and Offtake Agreements with J. Aron to support the operations of our Hawaii refinery. On May 8, 2017, we and J. Aron amended the Supply and Offtake Agreements and extended the term through May 31, 2021 with a one -year extension option upon mutual agreement of the parties. On June 27, 2018, we and J. Aron amended the Supply and Offtake Agreements to increase the amount that we may defer under the deferred payment arrangement. On December 5, 2018 , we amended the Supply and Offtake Agreements to account for additional processing capacity expected to be provided through the Hawaii Refinery Expansion . Please read Note 8—Inventory Financing Agreements for more information.
Washington Refinery Intermediation Agreement . In connection with the consummation of the Washington Acquisition on January 11, 2019 , we assumed the Washington Refinery Intermediation Agreement with MLC to support the operations of our Washington refinery. The Washington Refinery Intermediation Agreement expires on December 31, 2019 . Please read Note 8—Inventory Financing Agreements for more information.

52

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of our business. Please read Note 13—Commitments and Contingencies to our condensed consolidated financial statements for more information.
Critical Accounting Policies and Estimates
Except as described below, there have been no material changes to critical accounting policies disclosed in our Annual Report on Form 10-K.
Inventory
Commodity inventories, excluding commodity inventories at the refinery located in Tacoma, Washington, are stated at the lower of cost or net realizable value using the first-in, first-out accounting method (“FIFO”). Cost of crude and refined products inventory at the Washington refinery is determined using the last-in, first-out (“LIFO”) inventory valuation method and inventory is stated at the lower of LIFO cost or net realizable value. We value merchandise along with spare parts, materials, and supplies at average cost.
Estimating the net realizable value of our inventory requires management to make assumptions about the timing of sales and the expected proceeds that will be realized for the sales.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (“PSLRA”), or in releases made by the SEC, all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties, and other important factors including, without limitation, our beliefs with regard to available capital resources, our beliefs regarding the likelihood or impact of any potential fines or penalties and of the fair value of certain assets, and our expectations with respect to laws and regulations, including environmental regulations and related compliance costs and any fines or penalties related thereto, including potential fines and penalties related to Wyoming Refining; our expectations regarding the sufficiency of our cash flows and liquidity; our expectations regarding anticipated capital expenditures, including the timing and cost of compliance with consent decrees; our expectations regarding the impact of the adoption of certain accounting standards; our beliefs as to the impact of changes to inputs regarding the valuation of our stock warrants, as well as our estimates regarding the fair value of such warrants and certain indebtedness; estimated costs to settle claims from the Delta bankruptcy; the estimated value of, and our ability to settle, legal claims remaining to be settled against third parties; our expectations regarding the synergies or other benefits of the Hawaii Refinery Expansion or the Washington Acquisition; our expectations regarding certain tax liabilities and debt obligations; our expectations and estimates regarding our Supply and Offtake Agreements and the Washington Refinery Intermediation Agreement ; management’s assumptions about future events; our ability to raise additional debt or equity capital; our ability to make strategic investments in business opportunities; and the estimates, assumptions and projections regarding future financial condition, results of operations, liquidity, and cash flows. These and other forward-looking statements could cause the actual results, performance, or achievements of Par and its subsidiaries to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “may,” “will,” “would,” “could,” “should,” “seeks,” or “scheduled to,” or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act, and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control, including those set out in our most recent Annual Report on Form 10-K and this Quarterly Report on Form 10-Q under “Risk Factors.”
In addition, management’s assumptions about future events may prove to be inaccurate. All readers are cautioned that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance; and we cannot assure any reader that such statements will be realized or that the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors described above and under Critical Accounting Policies and Risk Factors included in our most recent Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q. All forward-looking statements speak only as of the date they are made. We do not intend to

53

update or revise any forward-looking statements as a result of new information, future events, or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
Our earnings, cash flow, and liquidity are significantly affected by commodity price volatility. Our Revenues fluctuate with refined product prices and our Cost of revenues (excluding depreciation) fluctuates with movements in crude oil and feedstock prices. Assuming all other factors remain constant, a $1 per barrel change in average gross refining margins, based on our throughput for the three months ended June 30, 2019 of 173 thousand barrels per day, would change annualized operating income by approximately $62.2 million . This analysis may differ from actual results.
In order to manage commodity price risks, we utilize exchange-traded futures, options, and OTC swaps to manage commodity price risks associated with:
•
the price for which we sell our refined products;
•
the price we pay for crude oil and other feedstocks;
•
our crude oil and refined products inventory; and
•
our fuel requirements for our refineries.
We are required under the Supply and Offtake Agreements with J. Aron to hedge the time spread between the period of crude oil cargo pricing and the month of delivery for certain crude oil purchases. We manage this exposure by entering into swaps. Please read Note 8—Inventory Financing Agreements for more information.
All of our futures and OTC swaps are executed to economically hedge our physical commodity purchases, sales, and inventory. Our open futures and OTC swaps expire at various dates through September 2019 . At June 30, 2019 , these open commodity derivative contracts represent (in thousands of barrels):
Contract type
 
Purchases
 
Sales
 
Net
Futures
 
1,045

 
(308
)
 
737

Swaps
 
2,700

 
(3,946
)
 
(1,246
)
Total
 
3,745

 
(4,254
)
 
(509
)
Based on our net open positions at June 30, 2019 , a $1 change in the price of crude oil, assuming all other factors remain constant, would result in a change of approximately $1.2 million to the fair value of these derivative instruments and Cost of revenues (excluding depreciation) .
Our predominant variable operating cost is the cost of fuel consumed in the refining process, which is included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. Assuming normal operating conditions, we consume approximately 173 thousand barrels per day of crude oil during the refining process at our Hawaii, Washington, and Wyoming refineries. We internally consume approximately 3% of this throughput in the refining process, which is accounted for as a fuel cost.
Compliance Program Price Risk
We are exposed to market risks related to the volatility in the price of RINs required to comply with the Renewable Fuel Standard. Our renewable volume obligation (“ RVO ”) is based on a percentage of our Hawaii, Wyoming, and Washington refineries’ production of on-road transportation fuel. The EPA sets the RVO percentages annually. To the degree we are unable to blend the required amount of biofuels to satisfy our RVO , we must purchase RINs on the open market. To mitigate the impact of this risk on our results of operations and cash flows, we may purchase RINs when the price of these instruments is deemed favorable. Some of these contracts are derivative instruments, however, we elect the normal purchases normal sales exception and do not record these contracts at their fair values.
Interest Rate Risk
As of June 30, 2019 , we had $291.6 million in debt principal that was subject to floating interest rates. We also had interest rate exposure in connection with our liabilities under the J. Aron Supply and Offtake Agreements and the Washington Refinery Intermediation Agreement for which we pay charges based on three-month LIBOR. An increase of 1% in the variable rate on our

54

indebtedness, after considering the instruments subject to minimum interest rates, would result in an increase to our Cost of revenues (excluding depreciation) and Interest expense and financing costs, net , of approximately $3.2 million and $4.5 million per year, respectively.
We may utilize interest rate swaps to manage our interest rate risk. As of June 30, 2019 , we had entered into an interest rate swap at an average fixed rate of 3.91% in exchange for the floating interest rate and on the notional amounts due under the Retail Property Term Loan . This swap expires on April 1, 2024 , the maturity date of the Retail Property Term Loan .
Credit Risk
We are subject to risk of losses resulting from nonpayment or nonperformance by our counterparties. We will continue to closely monitor the creditworthiness of customers to whom we grant credit and establish credit limits in accordance with our credit policy.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q, as of June 30, 2019 , an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of June 30, 2019 .
Changes in Internal Control over Financial Reporting
There were no changes during the quarter ended June 30, 2019  in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financing reporting.
PART II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of our business. Please read Note 13—Commitments and Contingencies to our condensed consolidated financial statements for more information.
Item 1A. RISK FACTORS
We are subject to certain risks. For a discussion of these risks, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 . Except as set forth below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K.
An impairment of an equity investment, a long-lived asset, or goodwill could reduce our earnings or negatively impact the value of our common stock.
Consistent with GAAP, we evaluate our goodwill for impairment at least annually and our equity investments and long-lived assets, including intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the investments we account for under the equity method, such as Laramie Energy, the impairment test requires us to consider whether the fair value of the equity investment as a whole, not the underlying net assets, has declined and whether that decline is other-than-temporary. If we determine that an other-than-temporary impairment is indicated, we would be required to recognize a noncash charge to earnings with a correlative effect on equity and balance sheet leverage as measured by debt to total capitalization. This could have a negative impact on the price of our common stock. If such an impairment were to occur, there can be no assurance no future impairment charge will be made with respect to our equity investments, goodwill, and long-lived assets.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Dividends
We have not paid dividends on our common stock and we do not expect to do so in the foreseeable future. In addition, under the ABL Credit Facility , the indenture governing the 7.75% Senior Secured Notes , and the Term Loan B Facility , our subsidiaries are restricted from paying dividends or making other equity distributions, subject to certain exceptions.
Stock Repurchases    
The following table sets forth certain information with respect to repurchases of our common stock during the quarter ended June 30, 2019 :
Period
Total number of shares (or units) purchased (1)
 
Average price paid per share (or unit)
 
Total number of shares (or units) purchased as part of publicly announced plans or programs
 
Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
April 1 - April 30, 2019
146

 
$
17.87

 
—

 
—

May 1 - May 31, 2019
869

 
19.77

 
—

 
—

June 1 - June 30, 2019
968

 
19.13

 
—

 
—

Total
1,983

 
$
19.32

 
—

 
—

________________________________________________
(1) All shares repurchased were surrendered by employees to pay taxes withheld upon the vesting of restricted stock awards.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. MINE SAFETY DISCLOSURE
Not applicable.
Item 5. OTHER INFORMATION
None.

55

Item 6. EXHIBITS

2.1
 
 
2.2
 
 
2.3
 
 
2.4
 
 
2.5
 
 
2.6
 
 
2.7
 
 
2.8
 
 
2.9
 
 
2.10
 
 
2.11
 
 
2.12
 
 
3.1
 
 
3.2
 
 
4.1
 
 
4.2
 
 
4.3
 
 

56

4.4
 
 
4.5
 
 
4.6
 
 
4.7
 
 
4.8
 
 
4.9
 
 
4.10
 
 
4.11
 
 
4.12
 
 
4.13
 
 
4.14
 
 
4.15
 
 
4.16
 
 
4.17
 
 
4.18
 
 
4.19
 
 
10.1
 
 
10.2
 
 

57

10.3
 
 
 
 
31.1
 
 
31.2
 
 
32.1
 
 
32.2
 
 
101.INS
XBRL Instance Document.**
 
 
101.SCH
XBRL Taxonomy Extension Schema Documents.**
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.**
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.**
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.**
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.**
*     Filed herewith.
**    These interactive data files are furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
@    Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplementally a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.
#     Confidential treatment has been requested for portions of this exhibit. Omissions are designated with brackets containing asterisks. As part of our confidential treatment request, a complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

58

SIGNATURES
Pursuant to the requirements of the Securities Exchange of Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
PAR PACIFIC HOLDINGS, INC.
(Registrant)
 
 
 
 
 
 
By:
/s/ William Pate
 
 
 
 
William Pate
 
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
 
 
By:
/s/ William Monteleone
 
 
 
 
William Monteleone
 
 
 
 
Chief Financial Officer
 
 

Date: August 8, 2019



59
Execution Version

AMENDMENT TO AMENDED AND RESTATED
SUPPLY AND OFFTAKE AGREEMENT
This AMENDMENT TO AMENDED AND RESTATED SUPPLY AND OFFTAKE AGREEMENT (this “ Amendment ”) is made and entered into as of June 20, 2019, by and among Par Hawaii Refining, LLC f/k/a Hawaii Independent Energy, LLC (the “ Company ”), Par Petroleum, LLC (the “ Guarantor ”) and J. Aron & Company LLC (“ Aron ”) (each referred to individually as a “ Party ” and collectively, the “ Parties ”).
RECITALS
A.    The Company owns and operates a crude oil refinery and related assets located in Kapolei, Hawaii (the “ Refinery ”) for the processing and refining of crude oil and other feedstocks and the recovery therefrom of refined products.
B.    The Parties have entered into an Amended and Restated Supply and Offtake Agreement, dated as of December 21, 2017 (as from time to time amended, modified, supplemented, extended, renewed and/or restated, the “ S&O Agreement ”), pursuant and subject to which Aron has agreed to supply crude oil to the Company to be processed at the Refinery and purchase refined products from the Company produced at the Refinery.
C.    The Parties have agreed to amend the S&O Agreement pursuant to the terms set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing premises, the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, subject to the terms and conditions hereinafter set forth, agree as follows:
Section 1
Definitions; Interpretation
Section 1.1      Defined Terms . All capitalized terms used in this Amendment (including in the Recitals hereto) and not otherwise defined herein shall have the meanings assigned to them in the S&O Agreement.
Section 1.2      Interpretation . The rules of construction set forth in Section 1.2 of the S&O Agreement shall be applicable to this Amendment and are incorporated herein by this reference.
SECTION 2
Amendment
Section 2.1      Amendment to S&O Agreement . Upon the effectiveness of this Amendment:
(a)      Section 1.1 of the S&O Agreement is hereby amended by inserting, in the appropriate alphabetical order, the following new definition:
“ HECO Entities ” means, collectively, (i) Hawaiian Electric Co., Inc., (ii) Maui Electric Company, Ltd. and (iii) Hawaii Electric Light Company, Inc.
“ HECO Parent ” means Hawaiian Electric Industries, Inc.
(b)      Section 1.1 of the S&O Agreement is hereby amended by amending and restated each of the following existing definitions:
“ Included Utility ” means Kauai Island Utility Cooperative.
(c)      Clause (w)(I) of the definition of “Eligible Receivables” in Section 1.1 of the S&O Agreement is hereby amended and restated in its entirety to read as follows:
(I)    the aggregate amount of such Accounts owing by a single account debtor does not constitute more than twenty-five percent (25%) of the sum of all Eligible Receivables (but the portion of the Accounts not in excess of such percentage shall be deemed Eligible Receivables); provided that with respect to the HECO Entities, (x) at all times HECO Parent maintains an Investment Grade Rating, the aggregate amount of such Accounts owing by the HECO Entities does not constitute more than forty percent (40%) of the sum of all Eligible Receivables and (y) at all times HECO Parent does not maintain an Investment Grade Rating, the aggregate amount of such Accounts owing by the HECO Entities does not constitute more than twenty-five (25%) of the sum of all Eligible Receivables.
(d)      Section 11.8 of the S&O Agreement is hereby amended by deleting the proviso immediately following subsection (c) thereof.
(e)      The Schedules attached to the S&O Agreement are hereby amended by replacing the Schedule D attached to the S&O Agreement with the Schedule D attached hereto.
Section 2.2      References Within S&O Agreement . Each reference in the S&O Agreement to “this Agreement” and the words “hereof,” “hereto,” “herein,” “hereunder,” or words of like import, and each reference in any other Transaction Document to “the S&O Agreement” and the words “thereof,” “thereto,” “therein,” “thereunder” or words of like import, in each case, shall mean and be a reference to the S&O Agreement as heretofore amended and as amended by this Amendment.
SECTION 3
Representations and Warranties
To induce the other Party to enter into this Amendment, each Party hereby represents and warrants that (i) it has the corporate, governmental or other legal capacity, authority and power to execute this Amendment, to deliver this Amendment and to perform its obligations under the S&O Agreement, as amended hereby, and has taken all necessary action to authorize the foregoing; (ii) the execution, delivery and performance of this Amendment does not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or Governmental Authority applicable to it or any of its assets or subject; (iii) all governmental and other consents required to have been obtained by it with respect to this Amendment have been obtained and are in full force and effect; (iv) its obligations under the S&O Agreement, as amended hereby, constitute its legal, valid and binding obligations, enforceable in accordance with its terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application regardless of whether enforcement is sought in a proceeding in equity or at law) and (v) no Event of Default with respect to it has occurred and is continuing.
SECTION 4
Reaffirmation
All of the terms and provisions of the S&O Agreement shall, as amended and modified hereby, remain in full force and effect. Each of the Company and the Guarantor hereby agrees that the amendments and modifications herein contained shall in no manner affect (other than expressly provided herein) or impair the Obligations or the Liens securing the payment and performance thereof. Each of the Company and the Guarantor hereby ratifies and confirms all of its respective obligations and liabilities under the Transaction Documents to which it is a party, as expressly modified herein, and the Guarantor ratifies and confirms that such obligations and liabilities extend to and continue in effect with respect to, and continue to guarantee the Obligations of the Company under the Transaction Documents, as expressly modified herein.
SECTION 5
Miscellaneous
Section 5.1      S&O Agreement Otherwise Not Affected . Except for the amendments pursuant hereto, the S&O Agreement remains unchanged. As amended pursuant hereto, the S&O Agreement remains in full force and effect and is hereby ratified and confirmed in all respects. The execution and delivery of, or acceptance of, this Amendment and any other documents and instruments in connection herewith by either Party shall not be deemed to create a course of dealing or otherwise create any express or implied duty by it to provide any other or further amendments, consents or waivers in the future. For all purposes of the S&O Agreement and the other Transaction Documents, this Amendment shall constitute a “Transaction Document.”
Section 5.2      No Reliance . Each Party hereby acknowledges and confirms that it is executing this Amendment on the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person.
Section 5.3      Binding Effect . This Amendment shall be binding upon, inure to the benefit of and be enforceable by the Company, Aron and their respective successors and assigns.
Section 5.4      Governing Law . THIS AMENDMENT SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED UNDER THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER STATE.
Section 5.5      Amendments . This Amendment may not be modified, amended or otherwise altered except by written instrument executed by the Parties’ duly authorized representatives.
Section 5.6      Effectiveness; Counterparts . This Amendment shall be binding on the Parties as of the date on which it has been fully executed by the Parties. This Amendment may be executed in any number of counterparts and by different Parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.
Section 5.7      Interpretation . This Amendment is the result of negotiations between the Parties and has been reviewed by counsel to each of the Parties, and is the product of all Parties hereto. Accordingly, this Amendment shall not be construed against either Party merely because of such Party’s involvement in the preparation hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF , each Party hereto has caused this Amendment to be executed by its duly authorized representative as of the date first above written.


J. ARON & COMPANY LLC

By:     /s/ Harsha V. Rajamani        
Name:     Harsha V. Rajamani            
Title:     Managing Director            

PAR HAWAII REFINING, LLC

By:     /s/ James Matthew Vaughn        
Name:     James Matthew Vaughn        
Title:     Vice President and Secretary        

PAR PETROLEUM, LLC

By:     /s/ James Matthew Vaughn        
Name:     James Matthew Vaughn        
Title:     Vice President and Secretary        



 


Exhibit 31.1
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)/15d-14(a) PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
 
I, William Pate, certify that:
 
 
1.
I have reviewed this annual report on Form 10-Q of Par Pacific Holdings, Inc.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
 
 
 
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
 
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
 
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
 
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 









 
 
 
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
 
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 8, 2019
 
 
 
/s/ William Pate
William Pate
President and Chief Executive Officer





Exhibit 31.2
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)/15d-14(a) PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
 
I, William Monteleone, certify that:
 
 
1.
I have reviewed this annual report on Form 10-Q of Par Pacific Holdings, Inc.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
 
 
 
 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
 
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
 
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
 
 
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 






 
 
 
 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
 
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 8, 2019
 
 
 
/s/ William Monteleone
William Monteleone
Chief Financial Officer

 





Exhibit 32.1
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of Par Pacific Holdings, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2019 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, William Pate, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
 
 
 
 
1.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
 
 
 
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
/s/ William Pate
William Pate
President and Chief Executive Officer
 
August 8, 2019

 
 





Exhibit 32.2
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of Par Pacific Holdings, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2019 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, William Monteleone, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
 
 
 
 
1.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
 
 
 
 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
/s/ William Monteleone
William Monteleone
Chief Financial Officer
 
August 8, 2019