Par Pacific Holdings Reports First Quarter 2018 Results

Source Press Release
Company Par Pacific Holdings, Inc. 
Tags Hedging, Upstream Activities, Financial & Operating Data
Date May 08, 2018

Par Pacific Holdings, Inc. (NYSE: PARR) ("Par Pacific" or the "Company") today reported its financial results for the quarter ended March 31, 2018.

First Quarter 2018 Highlights

  • Net Income of $15.2 million, or $0.33 per diluted share
  • Adjusted Net Income of $8.2 million, or $0.18 per diluted share
  • Adjusted EBITDA of $26.1 million
  • Record sales of 18,272 barrels per day for the Wyoming refining business
  • Record on-island sales of 69,420 barrels per day in Hawaii
  • Closed acquisition of 33 Cenex® ZipTrip retail outlets, expanding our footprint in the attractive Northwest market

Par Pacific reported net income of $15.2 million, or $0.33 per diluted share, for the quarter ended March 31, 2018, compared to net income of $27.8 million, or $0.58 per diluted share, for the same quarter in 2017. First quarter 2018 Adjusted Net Income was $8.2 million, compared to Adjusted Net Income of $10.0 million in the first quarter of 2017. First quarter 2018 Adjusted EBITDA was $26.1 million, compared to Adjusted EBITDA of $32.3 million in the first quarter of 2017.

First quarter 2018 net income includes $13.2 million of RINs benefit primarily due to our refineries obtaining a Small Refinery Exemption, offset in part by a $10.5 million expense related to a settlement payment made to the former owner of our Hawaii refinery business to resolve the Tesoro Earnout Dispute, a description of which can be found in our 2017 Form 10-K - see "Tesoro Earnout Dispute" under "Management's Discussion and Analysis of Financial Condition and Results of Operations." First quarter 2018 Adjusted Net Income and Adjusted EBITDA exclude the charge associated with the settlement payment.  Further, Par Pacific no longer includes its share of Laramie Energy's unrealized derivativegains and losses in the calculation of Adjusted Net Income. Accordingly, the presentation of first quarter 2017 Adjusted Net Income has been recast to exclude a $10.2 million gain that was previously included in the calculation.  A reconciliation of reported non-GAAP financial measures to their most directly comparable GAAP financial measures can be found in the tables accompanying this news release.

"Our strong retail, logistics, and Wyoming refinery financial results and other accomplishments during the first quarter demonstrate the benefit of having a diversified business and the team's ability to execute on our strategy of expanding into attractive markets," said William Pate, Par Pacific's President and Chief Executive Officer. "The successful addition of 33 Cenex® ZipTrip retail outlets in the Northwest is another important step towards improving our earnings and cash generation capabilities while mitigating the impact of challenging margins in our cyclical Hawaii refining business. Looking ahead, while rising crude prices will keep the team focused on optimizing refinery gross margins and prudently managing our financial position, we remain committed to pursuing growth opportunities that will create long-term value for our shareholders."

Refining

The Refining segment generated operating income of $26.1 million for the first quarter of 2018, compared to operating income of $27.4 million for the first quarter of 2017. Adjusted Gross Margin for the Refining segment was $56.4 million inclusive of the RINs benefit in the first quarter of 2018, compared to $61.0 million in the first quarter of 2017.

Refining Adjusted EBITDA was $19.0 million in the first quarter of 2018 inclusive of the RINs benefit, compared to Refining Adjusted EBITDA of $25.1 million in the first quarter of 2017.

Hawaii Refinery

The combined Mid Pacific Index was $7.40/bbl in the first quarter of 2018, compared to $8.90/bbl in the first quarter of 2017. The Hawaii refinery's throughput in the first quarter of 2018 was 76 thousand barrels per day (Mbpd). This compares to 77 Mbpd throughput for the same quarter in 2017. Production costs were $3.64 per throughput barrel in the first quarter of 2018, compared to $3.71 per throughput barrel in the same period in 2017.

Wyoming Refinery

During the first quarter of 2018, the Wyoming 3-2-1 Index averaged $15.65/bbl, compared to $16.51/bbl in the first quarter of 2017. The Wyoming refinery's throughput was 17 Mbpd in the first quarter of 2018. This compares to 14 Mbpd throughput for the same quarter in 2017. Production costs were $7.74 per throughput barrel in the first quarter of 2018. This compares to $7.46 per throughput barrel for the same quarter in 2017.

Retail

The Retail segment reported operating income of $5.7 million in the first quarter of 2018, compared to $6.1 million in the first quarter of 2017. Adjusted Gross Margin for the Retail segment was $19.4 million in the first quarter of 2018, compared to $17.9 million in the same quarter of 2017.

Retail Adjusted EBITDA was $7.6 million in the first quarter of 2018, consistent with $7.6 million in the first quarter of 2017. The Retail segment reported sales volumes of 22.2 million gallons in the first quarter of 2018, compared to 22.1 million gallons in the same quarter of 2017.

Logistics

For the first quarter of 2018, the Logistics segment generated operating income of $8.8 million, compared to $9.4 million for the first quarter of 2017. Adjusted Gross Margin for the Logistics segment was $12.3 million in the first quarter of 2018, compared to $14.7 million in the same quarter of last year.

Logistics Adjusted EBITDA was $10.4 million in the first quarter of 2018, compared to $10.9 million in the first quarter of 2017.

Laramie Energy

Equity earnings from Laramie in the first quarter of 2018 were $5.6 million, compared to equity earnings of $8.7 million in the first quarter of 2017. As previously communicated, Laramie completed the acquisition of a small in-basin operator in the quarter.  First quarter 2018 earnings attributable to Par Pacific's 39.1% ownership interest in Laramie included $2.0 million in unrealized gains on derivativeinstruments compared to $10.2 million in unrealized gains on derivative instruments during the first quarter of 2017.

Laramie averaged 173 million cubic feet equivalent per day (MMcfed) of production during the first quarter of 2018 and exited the quarter with production of 190 MMcfed.

Liquidity

Net cash provided by operations totaled $12.6 million for the three months ended March 31, 2018, compared to $25.0 million provided by operations during the three months ended March 31, 2017. At March 31, 2018, Par Pacific's cash balance totaled $65.0 million, long-term debt totaled $386.5 million, and total liquidity was $122.6 million. Par Pacific's cash balance declined by $53.4 million in the quarter, primarily due to acquisition activity and the resolution of the Tesoro Earnout Dispute, offset by cash provided from operations.

Conference Call Information

A conference call is scheduled for Wednesday, May 9, 2018 at 11:00 a.m. Central Time (12:00 p.m. Eastern Time). To access the call, please dial 1-877-404-9648 inside the U.S. or 1-412-902-0030 outside the U.S. and ask for the Par Pacific call. Please dial in at least 10 minutes early to register. The webcast may be accessed online through the Company's website at  on the Investor Relations page. A telephone replay will be available until May 16, 2018 and may be accessed by calling 1-877-660-6853 inside the U.S. or 1-201-612-7415 outside the U.S. and using the conference ID 13678423#.

Condensed Consolidated Statements of Operations 
(Unaudited) 
(in thousands, except per share data) 
 
  Three Months Ended
March 31, 
  2018    2017 
Revenues  765,439      605,253   
Operating expenses       
Cost of revenues (excluding depreciation)  661,899      501,289   
Operating expense (excluding depreciation)  51,010      50,348   
Depreciation, depletion, and amortization  13,037      11,260   
General and administrative expense (excluding depreciation)  11,205      12,914   
Acquisition and integration expense  632      253   
Total operating expenses  737,783      576,064   
Operating income  27,656      29,189   
Other income (expense)       
Interest expense and financing costs, net  (8,377)      (8,942)   
Other income, net  119      130   
Change in value of common stock warrants  745      (689)   
Change in value of contingent consideration  (10,500)       
Equity earnings from Laramie Energy, LLC  5,576      8,746   
Total other income (expense), net  (12,437)      (755)   
Income before income taxes  15,219      28,434   
Income tax expense  (34)      (648)   
Net income  15,185      27,786   
Weighted-average shares outstanding       
Basic  45,634      45,476   
Diluted  45,677      51,865   
       
Income per share       
Basic  0.33      0.60   
Diluted  0.33      0.58   

Balance Sheet Data 
(Unaudited) 
(in thousands, except per share data) 
 
  March 31, 2018    December 31, 2017 
Balance Sheet Data       
Cash and cash equivalents  64,957      118,333   
Working capital (1)  14,090      14,259   
Debt, including current portion  386,500      384,812   
Total stockholders' equity  463,799      447,719   

________________________________________ 
(1)  Working capital is calculated as (i) total current assets, excluding cash and cash equivalents less (ii) total current liabilities, excluding current portion of long-term debt. 

Operating Statistics 
The following table summarizes certain operational data: 
 
  Three Months Ended
March 31, 
  2018    2017 
Total Refining Segment       
Feedstocks Throughput (Mbpd)  92.7      91.1   
Refined product sales volume (Mbpd)  102.3      94.8   
       
Hawaii Refinery       
Feedstocks Throughput (Mbpd)  76.2      76.8   
Source of Crude Oil:       
North America  39.7    44.2 
Asia  6.7    25.8 
Africa  39.9    22.8 
Latin America    0.3 
Middle East  13.7    6.9 
Total  100.0    100.0 
       
Yield (% of total throughput)       
Gasoline and gasoline blendstocks  28.2    27.5 
Distillate  47.2    45.0 
Fuel oils  16.3    18.4 
Other products  5.2    5.9 
Total yield  96.9    96.8 
       
Refined product sales volume (Mbpd)       
On-island sales volume  69.4      61.8   
Exports sale volume  14.6      18.2   
Total refined product sales volume  84.0      80.0   
       
4-1-2-1 Singapore Crack Spread ($ per barrel) (1)  6.38      6.74   
4-1-2-1 Mid Pacific Crack Spread ($ per barrel) (1)  7.38      7.69   
Mid Pacific Crude Oil Differential ($ per barrel) (2)  (0.02)      (1.21)   
Operating income (loss) per bbl ($/throughput bbl)  2.96      4.01   
Adjusted Gross Margin per bbl ($/throughput bbl) (3)  5.20      7.06   
Production costs per bbl ($/throughput bbl) (4)  3.64      3.71   
DD&A per bbl ($/throughput bbl)  0.71      0.64   
       
Wyoming Refinery       
Feedstocks Throughput (Mbpd)  16.5      14.3   
       
Yield (% of total throughput)       
Gasoline and gasoline blendstocks  49.9    54.2 
Distillate  44.8    39.8 
Fuel oils  2.5    2.7 
Other products  0.4    1.4 
Total yield  97.6    98.1 
       
Refined product sales volume (Mbpd)  18.3      14.8   
       
  Three Months Ended
March 31, 
  2018    2017 
Wyoming Refinery (continued)       
Wyoming 3-2-1 Index ($ per barrel) (5)  15.65      16.51   
Operating income (loss) per bbl ($/throughput bbl)  3.89      (0.24)   
Adjusted Gross Margin per bbl ($/throughput bbl) (3)  13.96      9.45   
Production costs per bbl ($/throughput bbl) (4)  7.74      7.46   
DD&A per bbl ($/throughput bbl)  2.33      2.31   
       
Retail Segment       
Retail sales volumes (thousands of gallons) (6)  22,190      22,058   
       
Logistics Segment       
Pipeline throughput (Mbpd)       
Crude oil pipelines  88.4      91.1   
Refined product pipelines  90.9      90.5   
Total pipeline throughput  179.3      181.6   

________________________________________ 
(1)  The profitability of our Hawaii business is heavily influenced by crack spreads in both the Singapore and U.S. West Coast markets. These markets reflect the closest liquid market alternatives to source refined products for Hawaii. We believe the Singapore and Mid Pacific crack spreads (or four barrels of Brent crude converted into one barrel of gasoline, two barrels of distillate (diesel and jet fuel) and one barrel of fuel oil) best reflect a market indicator for our Hawaii refinery operations. The Mid Pacific crack spread is calculated using a ratio of 80% Singapore and 20% San Francisco indices. 
(2)  Weighted-average differentials, excluding shipping costs, of a blend of crudes with an API of 31.98 and sulfur weight percentage of 0.65% that is indicative of our typical crude oil mix quality compared to Brent crude. 
(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.  
(4)  Management uses production costs per barrel to evaluate performance and compare efficiency to other companies in the industry. There are 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 to run the refineries 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 consolidated statement of operations, which also includes costs related to our bulk marketing operations. 
(5)  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 distillate (ultra-low sulfur diesel) as created from three barrels of West Texas Intermediate Crude. Pricing is based 50% on applicable product pricing in Rapid City, South Dakota, and 50% on applicable product pricing in Denver, Colorado. 
(6)  Retail sales volumes for the three months ended March 31, 2018, include the nine days of retail sales volumes from Northwest Retail from the acquisition date of March 23, 2018 through March 31, 2018. 

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), depreciation, depletion, and amortization ("DD&A"), inventory valuation adjustment (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 derivativerepurchase obligation, and purchase price allocation adjustments), 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 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 that we exclude from Adjusted Gross Margin.

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 agreement 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 March 31, 2018  Refining    Logistics    Retail 
Operating income (loss)  26,073      8,793      5,738   
Operating expense (excluding depreciation)  37,349      1,822      11,839   
Depreciation, depletion, and amortization  8,362      1,642      1,868   
Inventory valuation adjustment  (11,887)           
Unrealized loss (gain) on derivatives  (3,505)           
Adjusted Gross Margin  56,392      12,257      19,445   
 
Three months ended March 31, 2017  Refining    Logistics    Retail 
Operating income (loss)  27,416      9,413      6,120   
Operating expense (excluding depreciation)  36,216      3,797      10,315   
Depreciation, depletion, and amortization  7,403      1,487      1,448   
Inventory valuation adjustment  (8,792)           
Unrealized loss (gain) on derivatives  (1,287)           
Adjusted Gross Margin  60,956      14,697      17,883   

Adjusted Net Income (Loss) and Adjusted EBITDA

Adjusted Net Income (Loss) is defined as net income (loss) excluding changes in the value of contingent consideration and common stock warrants, acquisition and integration expense, unrealized (gains) losses on derivatives, loss on termination of financing agreements, release of tax valuation allowance, inventory valuation adjustment, and severance costs. Beginning in 2018, Adjusted Net Income (Loss) also excludes Par's share of Laramie Energy's unrealized loss (gain) on derivatives. The exclusion of Par's share of Laramie Energy's unrealized loss (gain) on derivatives from Adjusted Net Income (Loss) is consistent with our treatment of Par's unrealized (gains) losses on derivatives, which are also excluded from Adjusted Net Income (Loss). We have recast the non-GAAP information for three months ended March 31, 2017 to conform to the current period presentation.

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 or gain on derivatives). We believe Adjusted Net Income (Loss) 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 (Loss) 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 (Loss) and Adjusted EBITDA presented by other companies may not be comparable to our presentation as other companies may define these terms differently.

The following table presents a reconciliation of Adjusted Net Income (Loss) and 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
March 31, 
  2018    2017 
Net income  15,185      27,786   
Inventory valuation adjustment  (11,887)      (8,792)   
Unrealized loss (gain) on derivatives  (3,505)      (1,287)   
Acquisition and integration expense  632      253   
Change in value of common stock warrants  (745)      689   
Change in value of contingent consideration  10,500       
Severance costs      1,595   
Par's share of Laramie Energy's unrealized loss (gain) on derivatives (1)  (1,988)      (10,237)   
Adjusted Net Income  8,192      10,007   
Depreciation, depletion, and amortization  13,037      11,260   
Interest expense and financing costs, net  8,377      8,942   
Equity losses (earnings) from Laramie Energy, LLC, excluding Par's share of unrealized loss (gain) on derivatives  (3,588)      1,491   
Income tax expense  34      648   
Adjusted EBITDA  26,052      32,348   

________________________________________ 
(1)  Included in Equity earnings from Laramie Energy, LLC on our Condensed Consolidated Statements of Operations. 

The following table sets forth the computation of basic and diluted Adjusted Net Income (Loss) per share (in thousands, except per share amounts):

  Three Months Ended
March 31, 
  2018    2017 
Adjusted Net Income  8,192      10,007   
Undistributed Adjusted Net Income allocated to participating securities (1)  103      108   
Net income attributable to common stockholders  8,089      9,899   
Plus: Net income effect of convertible securities       
Numerator for diluted income per common share  8,089      9,899   
       
Basic weighted-average common stock shares outstanding  45,634      45,476   
Add dilutive effects of common stock equivalents  43       
Diluted weighted-average common stock shares outstanding  45,677      45,476   
       
Basic Adjusted Net Income per common share  0.18      0.22   
Diluted Adjusted Net Income per common share  0.18      0.22   

________________________________________ 
(1)  Participating securities include restricted stock that has been issued but has not yet vested. 

Adjusted EBITDA by Segment

Adjusted EBITDA by segment is defined as operating income (loss) by segment excluding unrealized (gains) losses on derivatives, inventory valuation adjustment, severance costs, and depreciation, depletion, and amortization expense. We believe Adjusted EBITDA by segment is a useful supplemental financial measure to evaluate the economic performance of our segments without regard to financing methods, capital structure, or historical cost basis.

The following table presents a reconciliation of Adjusted EBITDA 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 March 31, 2018 
  Refining    Logistics    Retail 
Operating income by segment  26,073      8,793      5,738   
Depreciation, depletion, and amortization  8,362      1,642      1,868   
Inventory valuation adjustment  (11,887)           
Unrealized loss (gain) on derivatives  (3,505)           
Severance costs           
Adjusted EBITDA  19,043      10,435      7,606   
 
  Three Months Ended March 31, 2017 
  Refining    Logistics    Retail 
Operating income by segment  27,416      9,413      6,120   
Depreciation, depletion, and amortization  7,403      1,487      1,448   
Inventory valuation adjustment  (8,792)           
Unrealized loss (gain) on derivatives  (1,287)           
Severance costs  395           
Adjusted EBITDA  25,135      10,900      7,568   

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd