Company Quick10K Filing
Quick10K
Par Pacific Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.52 49 $1,010
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-15 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2019-05-13 Shareholder Vote
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-04-02 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-02-21 Regulation FD, Exhibits
8-K 2019-01-09 Enter Agreement, M&A, Off-BS Arrangement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-12-19 Enter Agreement, Sale of Shares, Regulation FD, Other Events, Exhibits
8-K 2018-12-12 Officers, Regulation FD, Exhibits
8-K 2018-12-10 Enter Agreement, Exhibits
8-K 2018-12-06 Other Events, Exhibits
8-K 2018-11-26 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-11-07 Regulation FD, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-08-29 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-08-08 Regulation FD, Exhibits
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-07-26 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-07-19 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-14 Shareholder Vote
8-K 2018-05-08 Earnings, Exhibits
8-K 2018-03-26 Regulation FD, Exhibits
8-K 2018-03-23 Other Events, Regulation FD, Exhibits
8-K 2018-03-06 Officers
8-K 2018-03-05 Earnings, Exhibits
8-K 2018-02-14 Regulation FD, Exhibits
8-K 2018-01-09 Enter Agreement, Regulation FD, Exhibits
MNST Monster Beverage 33,660
CP Canadian Pacific Railway 30,720
MLNX Mellanox Technologies 6,420
BAND Bandwidth 1,690
PACD Pacific Drilling 1,080
QIWI Qiwi 828
CSSE Chicken Soup For The Soul 112
MGYR Magyar Bancorp 68
TTCM Tautachrome 0
FLUX Flux Power Holdings 0
PARR 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Note 1-Overview
Note 2-Summary of Significant Accounting Policies
Note 3-Investment in Laramie Energy, Llc
Note 4-Acquisitions
Note 5-Revenue Recognition
Note 6-Inventories
Note 7-Prepaid and Other Current Assets
Note 8-Inventory Financing Agreements
Note 9-Debt
Note 10-Derivatives
Note 11-Fair Value Measurements
Note 12-Leases
Note 13-Commitments and Contingencies
Note 14-Stockholders' Equity
Note 15-Income (Loss) per Share
Note 16-Income Taxes
Note 17-Segment Information
Note 18-Related Party Transactions
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosure
Item 5. Other Information
Item 6. Exhibits
EX-31.1 a20190331ex311-wp20190331.htm
EX-31.2 a20190331ex312-wm20190331.htm
EX-32.1 a20190331ex321-wp20190331.htm
EX-32.2 a20190331ex322-wm20190331.htm

Par Pacific Holdings Earnings 2019-03-31

PARR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2019033110q20190331.htm 10-Q Document
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 March 31, 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, 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

49,550,274 shares of Common Stock, $0.01 par value, were outstanding as of May 3, 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)
 
March 31, 2019
 
December 31, 2018
ASSETS
 

 
 

Current assets
 
 
 

Cash and cash equivalents
$
60,297

 
$
75,076

Restricted cash
743

 
743

Total cash, cash equivalents, and restricted cash
61,040

 
75,819

Trade accounts receivable
264,402

 
160,338

Inventories
499,519

 
322,065

Prepaid and other current assets
83,670

 
28,370

Total current assets
908,631

 
586,592

Property and equipment
 
 
 

Property, plant, and equipment
1,083,300

 
649,768

Less accumulated depreciation, amortization, and depletion
(126,959
)
 
(111,507
)
Property and equipment, net
956,341

 
538,261

Long-term assets
 
 
 

Operating lease assets
405,942

 

Investment in Laramie Energy, LLC
136,957

 
136,656

Intangible assets, net
23,282

 
23,947

Goodwill
199,925

 
153,397

Other long-term assets
17,026

 
21,881

Total assets
$
2,648,104

 
$
1,460,734

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 

Current liabilities
 
 
 

Current maturities of long-term debt
$
12,441

 
$
33

Obligations under inventory financing agreements
629,086

 
373,882

Accounts payable
89,235

 
54,787

Deferred revenue
5,827

 
6,681

Accrued taxes
25,453

 
17,256

Operating lease liabilities
64,868

 

Other accrued liabilities
121,162

 
54,562

Total current liabilities
948,072

 
507,201

Long-term liabilities
 
 
 

Long-term debt, net of current maturities
664,388

 
392,607

Common stock warrants
6,289

 
5,007

Finance lease liabilities
6,366

 
6,123

Operating lease liabilities
344,620

 

Other liabilities
67,167

 
37,467

Total liabilities
2,036,902

 
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 March 31, 2019 and December 31, 2018, 49,550,274 shares and 46,983,924 shares issued at March 31, 2019 and December 31, 2018, respectively
496

 
470

Additional paid-in capital
655,692

 
617,937

Accumulated deficit
(47,659
)
 
(108,751
)
Accumulated other comprehensive income
2,673

 
2,673

Total stockholders’ equity
611,202

 
512,329

Total liabilities and stockholders’ equity
$
2,648,104

 
$
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
 
March 31,
 
2019
 
2018
Revenues
$
1,191,335

 
$
765,439


 
 
 
Operating expenses
 
 
 
Cost of revenues (excluding depreciation)
1,060,732

 
661,899

Operating expense (excluding depreciation)
73,674

 
51,010

Depreciation, depletion, and amortization
20,957

 
13,037

General and administrative expense (excluding depreciation)
11,665

 
11,205

Acquisition and integration costs
2,884

 
632

Total operating expenses
1,169,912

 
737,783


 
 
 
Operating income
21,423

 
27,656


 
 
 
Other income (expense)
 
 
 
Interest expense and financing costs, net
(18,710
)
 
(8,377
)
Debt extinguishment and commitment costs
(5,496
)
 

Other income, net
87

 
119

Change in value of common stock warrants
(1,282
)
 
745

Change in value of contingent consideration

 
(10,500
)
Equity earnings from Laramie Energy, LLC
301

 
5,576

Total other income (expense), net
(25,100
)
 
(12,437
)

 
 
 
Income (loss) before income taxes
(3,677
)
 
15,219

Income tax benefit (expense)
64,769

 
(34
)
Net income
$
61,092

 
$
15,185

 
 
 
 
Income per share
 
 
 
Basic
$
1.23

 
$
0.33

Diluted
$
1.14

 
$
0.33

Weighted-average number of shares outstanding
 
 
 
Basic
49,127

 
45,634

Diluted
55,550

 
45,677

 


 






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)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net income
$
61,092

 
$
15,185

Adjustments to reconcile net income to cash provided by (used in) operating activities:
 

 
 

Depreciation, depletion, and amortization
20,957

 
13,037

Debt extinguishment and commitment costs
5,496

 

Non-cash interest expense
2,574

 
1,864

Change in value of common stock warrants
1,282

 
(745
)
Deferred taxes
(65,129
)
 
31

Stock-based compensation
1,535

 
1,439

Unrealized (gain) loss on derivative contracts
5,255

 
(846
)
Equity earnings from Laramie Energy, LLC
(301
)
 
(5,576
)
Net changes in operating assets and liabilities:
 

 
 

Trade accounts receivable
(71,361
)
 
(6,086
)
Prepaid and other assets
(58,309
)
 
(79,117
)
Inventories
(80,518
)
 
53,484

Obligations under inventory financing agreements
82,870

 
(1,494
)
Accounts payable and other accrued liabilities
37,799

 
21,465

Net cash provided by (used in) operating activities
(56,758
)
 
12,641

Cash flows from investing activities:
 

 
 

Acquisitions of businesses, net of cash acquired
(271,065
)
 
(74,680
)
Capital expenditures
(17,864
)
 
(9,612
)
Other investing activities
188

 

Net cash used in investing activities
(288,741
)
 
(84,292
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
383,006

 
25,000

Repayments of borrowings
(89,038
)
 
(27,655
)
Net borrowings on deferred payment arrangements and receivable advances
56,967

 
21,544

Payment of deferred loan costs
(13,293
)
 
(72
)
Payments for commitment costs
(6,188
)
 

Other financing activities, net
(734
)
 
(543
)
Net cash provided by financing activities
330,720

 
18,274

Net decrease in cash, cash equivalents, and restricted cash
(14,779
)
 
(53,377
)
Cash, cash equivalents, and restricted cash at beginning of period
75,819

 
119,077

Cash, cash equivalents, and restricted cash at end of period
$
61,040

 
$
65,700

Supplemental cash flow information:
 

 
 

Net cash received (paid) for:
 
 
 
Interest
$
(3,389
)
 
$
3,219

Taxes

 

Non-cash investing and financing activities:
 

 
 

Accrued capital expenditures
$
9,457

 
$
1,466

Common stock issued for business combination
36,980

 
$

 


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
)
Net income

 

 

 
15,185

 

 
15,185

Balance, March 31, 2018
46,019

 
$
459

 
$
594,189

 
$
(132,993
)
 
$
2,144

 
$
463,799


 
 
 
 
 
 
 
 
 
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
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



4

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018




Note 1Overview
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 distillate, 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. During 2018, we completed the rebranding of 24 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 March 31, 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 2Summary 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 March 31, 2019 and 2018



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 $8.1 million as of March 31, 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 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.
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 expense excluded from each line item in our condensed consolidated statements of operations (in thousands):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Cost of revenues
 
$
3,839

 
$
1,607

Operating expense
 
12,585

 
6,904

General and administrative expense
 
672

 
1,147

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. 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.

6

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



ASU 2016-02 requires lessees to recognize a right-of-use asset (“ROU asset”) or 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 but 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 3Investment in Laramie Energy, LLC
As of March 31, 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 March 31, 2019, the balance outstanding on the revolving credit facility was approximately $192.8 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.
The change in our equity investment in Laramie Energy is as follows (in thousands):
 
Three Months Ended March 31, 2019
Beginning balance
$
136,656

Equity earnings from Laramie Energy
(1,372
)
Accretion of basis difference
1,673

Ending balance
$
136,957


7

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



Summarized financial information for Laramie Energy is as follows (in thousands):
 
March 31, 2019
 
December 31, 2018
Current assets
$
23,886

 
$
28,569

Non-current assets
771,958

 
788,515

Current liabilities
40,016

 
41,681

Non-current liabilities
276,420

 
293,084

 
Three Months Ended March 31,
 
2019
 
2018
Natural gas and oil revenues
$
67,924

 
$
46,681

Income from operations
13,743

 
6,044

Net (loss) income
(2,983
)
 
7,290

Laramie Energy’s net loss for the three months ended March 31, 2019 includes $21.4 million of depreciation, depletion, and amortization (“DD&A”) and $2.7 million of unrealized gains on derivative instruments. Laramie Energy’s net income for the three months ended March 31, 2018 includes $14.9 million of DD&A and $4.6 million of unrealized gains on derivative instruments.
At March 31, 2019 and December 31, 2018, our equity in the underlying net assets of Laramie Energy exceeded the carrying value of our investment by approximately $83.6 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 4Acquisitions
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 $326.4 million, including acquired working capital, consisting of cash consideration of $289.5 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 three months ended March 31, 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 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.

8

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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
34,954

Inventories
96,936

Prepaid and other assets
5,320

Property, plant, and equipment
410,624

Operating lease assets
62,337

Goodwill (1)
46,528

Total assets
672,845

Accounts payable
(13,445
)
Current operating lease obligations
(21,571
)
Other current liabilities
(58,626
)
Obligations under inventory financing agreements
(115,367
)
Long-term operating lease obligations
(40,766
)
Deferred tax liability
(95,824
)
Other non-current liabilities
(804
)
Total liabilities
(346,403
)
Total
$
326,442

______________________________________________
(1) We allocated $33.5 million and $13.0 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. We incurred $2.2 million of acquisition costs related to the Washington Acquisition for the three months ended March 31, 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 months ended March 31, 2019, our results of operations included revenues of $245.8 million and net loss of $3.1 million related to U.S. Oil. 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):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Revenues
 
$
1,219,243

 
$
1,054,156

Net income
 
65,568

 
1,858

 
 
 
 
 
Income per share
 
 
 
 
Basic
 
$
1.35

 
$
0.04

Diluted
 
$
1.24

 
$
0.04

Hawaii Refinery Expansion
On August 29, 2018, following the announcement by IES Downstream, LLC (“IES”) that it was ceasing refining operations in Hawaii, we entered into a Topping Unit Purchase Agreement with 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.

9

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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.
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 during the three months ended March 31, 2018. These costs were included in Acquisition and integration costs on our March 31, 2018 condensed consolidated statement of operations.
Note 5Revenue Recognition
As of March 31, 2019 and December 31, 2018, receivables from contracts with customers were $248.6 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 $5.8 million and $6.7 million as of March 31, 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):

10

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



Three Months Ended March 31, 2019
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
288,200

 
$

 
$
69,763

Distillates (1)
 
555,892

 

 
9,009

Other refined products (2)
 
301,446

 

 

Merchandise
 

 

 
20,609

Transportation and terminalling services
 

 
45,209

 

Other revenue
 
526

 

 
450

Total segment revenues (3)
 
$
1,146,064

 
$
45,209

 
$
99,831

Three Months Ended March 31, 2018
 
Refining
 
Logistics
 
Retail
Product or service:
 
 
 
 
 
 
Gasoline
 
$
239,261

 
$

 
$
58,202

Distillates (1)
 
398,529

 

 
6,996

Other refined products (2)
 
102,473

 

 

Merchandise
 

 

 
13,394

Transportation and terminalling services
 

 
33,067

 

Total segment revenues (3)
 
$
740,263

 
$
33,067

 
$
78,592

_______________________________________________________
(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 6Inventories
Inventories at March 31, 2019 consisted of the following (in thousands):
 
Titled Inventory
 
Supply and Offtake Agreements (1)
 
Total
Crude oil and feedstocks
$
83,849

 
$
114,057

 
$
197,906

Refined products and blendstock
113,471

 
140,683

 
254,154

Warehouse stock and other (2)
47,459

 

 
47,459

Total
$
244,779

 
$
254,740

 
$
499,519

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 $3.8 million and $5.0 million of RINs and environmental credits as of March 31, 2019 and December 31, 2018, respectively.
As of March 31, 2019, there was no reserve for the lower of cost or net realizable value of inventory. As of December 31, 2018, there was a $3.8 million reserve for the lower of cost or net realizable value of inventory. Our LIFO inventory reserve was $8.1 million as of March 31, 2019.

11

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



Note 7Prepaid and Other Current Assets
Prepaid and other current assets at March 31, 2019 and December 31, 2018 consisted of the following (in thousands):
 
March 31, 2019
 
December 31, 2018
Advances to suppliers for crude oil purchases
$
67,808

 
$

Collateral posted with broker for derivative instruments (1)
1,321

 
2,759

Prepaid insurance
7,240

 
7,727

Deferred financing costs
470

 

Derivative assets
1,483

 
5,164

Other
5,348

 
12,720

Total
$
83,670

 
$
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 8Inventory 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 March 31, 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 December 5, 2018 amendment to the Supply and Offtake Agreements also (i) requires 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 months ended March 31, 2019, we incurred approximately $5.4 million in handling fees related to the Supply and Offtake Agreements, which is included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. For the three months ended March 31, 2018, we incurred approximately $4.8 million in handling fees related to the Supply and Offtake Agreements. For the three months ended March 31, 2019, Interest expense and financing costs, net on our condensed consolidated statements of operations includes approximately $1.7 million of expenses related to the Supply and Offtake Agreements. For the three months ended March 31, 2018, Interest expense and financing costs, net on our condensed consolidated statements of operations includes approximately $0.7 million of expenses related to the Supply and Offtake Agreements.
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

12

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 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 March 31, 2019 and December 31, 2018, the capacity of the Deferred Payment Arrangement was $142.1 million and $77.4 million, respectively. As of March 31, 2019 and December 31, 2018, we had $128.5 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 March 31, 2019 and December 31, 2018, the receivable was $2.8 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 a an availability fee equal to 1.50% of the unused capacity under the MLC receivable advances. As of March 31, 2019, our outstanding balance under MLC receivable advances was equal to our borrowing base of $46.4 million. Additionally, as of March 31, 2019, we had approximately $62.7 million in letters of credit outstanding through MLC’s credit support.
For the three months ended March 31, 2019, we incurred approximately $0.8 million in handling fees related to the Washington Refinery Intermediation Agreement, which is included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. For the three months ended March 31, 2019, Interest expense and financing costs, net on our condensed consolidated statements of operations includes approximately $1.2 million of expenses 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.

13

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



Note 9Debt
The following table summarizes our outstanding debt (in thousands):
 
March 31, 2019
 
December 31, 2018
5.00% Convertible Senior Notes due 2021
$
115,000

 
$
115,000

7.75% Senior Secured Notes due 2025
300,000

 
300,000

ABL Credit Facility

 

Mid Pac Term Loan
1,457

 
1,466

Term Loan B
250,000

 

Retail Property Term Loan
45,000

 

Principal amount of long-term debt
711,457

 
416,466

Less: unamortized discount and deferred financing costs
(34,628
)
 
(23,826
)
Total debt, net of unamortized discount and deferred financing costs
676,829

 
392,640

Less: current maturities
(12,441
)
 
(33
)
Long-term debt, net of current maturities
$
664,388

 
$
392,607

Additionally, as of March 31, 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 March 31, 2019, we also had $3.7 million in cash-collateralized letters of credit and surety bonds outstanding.
Our debt is subject to various affirmative and negative covenants. As of March 31, 2019, we were in compliance with all debt covenants. 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 beginning December 21, 2017 (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 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 March 31, 2019, the ABL Revolver had no outstanding balance and a borrowing base of approximately $52.4 million and the ABL Credit Facility had $0.1 million in letters of credit outstanding.
5.00% Convertible Senior Notes Due 2021
As of March 31, 2019, the outstanding principal amount of the 5.00% Convertible Senior Notes was $115.0 million, the unamortized discount and deferred financing cost was $13.3 million, and the carrying amount of the liability component was $101.7 million.
Mid Pac Term Loan
On September 27, 2018, Mid Pac, our wholly owned subsidiary, entered into the Mid Pac Term Loan with American Savings Bank, FSB, which provided a term loan of up to $1.5 million, the proceeds of which were received and used for the October 18, 2018 purchase of retail property. The Mid Pac Term Loan is scheduled to mature on October 18, 2028.

14

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



The Mid Pac Term Loan is payable monthly, bears interest an annual rate of 4.375%, is secured by a first-priority lien on the real property purchased with the funds, including leases and rents on the property and the property's fixed assets and fixtures, and is guaranteed by Par Petroleum, LLC.
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 three months ended March 31, 2019.
Retail Property Term Loan
On March 29, 2019, Par Pacific Hawaii Property Company, 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 the borrower, 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.
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 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 March 31, 2019, we were in compliance with all of our debt agreements.

15

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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 10Derivatives
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 March 31, 2019, our open commodity derivative contracts represented (in thousands of barrels):
Contract type
 
Purchases
 
Sales
 
Net
Futures
 
381

 
(253
)
 
128

Swaps
 
6,660

 
(7,000
)
 
(340
)
Total
 
7,041

 
(7,253
)
 
(212
)
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.
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

16

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



our condensed consolidated statements of operations. As of March 31, 2019, this embedded derivative was deemed to have a de minimis fair value.
The following table provides information on the fair value amounts (in thousands) of these derivatives as of March 31, 2019 and December 31, 2018 and their placement within our condensed consolidated balance sheets.
 
Balance Sheet Location
 
March 31, 2019
 
December 31, 2018
 
 
 
Asset (Liability)
Commodity derivatives (1)
Prepaid and other current assets
 
$
1,407

 
$
4,973

Commodity derivatives
Other accrued liabilities
 
(2,274
)
 
(700
)
J. Aron repurchase obligation derivative
Obligations under inventory financing agreements
 
(13,222
)
 
4,085

MLC repurchase obligation derivative
Obligations under inventory financing agreements
 
(7,230
)
 

Interest rate derivatives
Prepaid and other current assets
 

 
191

_________________________________________________________
(1)
Does not include cash collateral of $1.3 million and $2.7 million recorded in Prepaid and other current assets and $8.8 million and $8.3 million in Other long-term assets as of March 31, 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 March 31,
 
Statement of Operations Location
 
2019
 
2018
Commodity derivatives
Cost of revenues (excluding depreciation)
 
$
(504
)
 
$
4,932

J. Aron repurchase obligation derivative
Cost of revenues (excluding depreciation)
 
(17,307
)
 
6,342

MLC repurchase obligation derivative
Cost of revenues (excluding depreciation)
 
(12,942
)
 

Interest rate derivatives
Interest expense and financing costs, net
 
1

 
1,236

Note 11Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Common Stock Warrants
As of March 31, 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 March 31, 2019 and December 31, 2018, the warrants had a weighted-average exercise price of $0.09 and $0.09 and a remaining term of 3.42 years and 3.67 years, respectively.
The estimated fair value of the common stock warrants was $17.75 and $14.13 per share as of March 31, 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

17

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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 March 31, 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 March 31, 2019 and December 31, 2018 are presented gross in the tables below (in thousands):
 
March 31, 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
$
238

 
$
19,776

 
$

 
$
20,014

 
$
(18,607
)
 
$
1,407

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Common stock warrants
$

 
$

 
$
(6,289
)
 
$
(6,289
)
 
$

 
$
(6,289
)
Commodity derivatives
(153
)
 
(20,728
)
 

 
(20,881
)
 
18,607

 
(2,274
)
J. Aron repurchase obligation derivative

 

 
(13,222
)
 
(13,222
)
 

 
(13,222
)
MLC repurchase obligation derivative

 

 
(7,230
)
 
(7,230
)
 

 
(7,230
)
Total
$
(153
)
 
$
(20,728
)
 
$
(26,741
)
 
$
(47,622
)
 
$
18,607

 
$
(29,015
)
 
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 $10.1 million and $10.9 million as of March 31, 2019 and December 31, 2018, respectively, included within Prepaid and other current assets and Other long-term assets on our condensed consolidated balance sheets.

18

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



A roll forward of Level 3 financial instruments measured at fair value on a recurring basis is as follows (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Balance, at beginning of period
$
(922
)
 
$
(26,372
)
Settlements

 

Acquired
(8,654
)
 

Total unrealized income (loss) included in earnings
(17,165
)
 
7,087

Balance, at end of period
$
(26,741
)
 
$
(19,285
)
The carrying value and fair value of long-term debt and other financial instruments as of March 31, 2019 and December 31, 2018 are as follows (in thousands):
 
March 31, 2019
 
Carrying Value
 
Fair Value
5.00% Convertible Senior Notes due 2021 (1) (3)
$
101,729

 
$
133,955

7.75% Senior Secured Notes due 2025 (1)
291,074

 
278,625

Mid Pac Term Loan (2)
1,457

 
1,457

Term Loan B Facility (1)
238,649

 
250,000

Retail Property Term Loan (2)
43,920

 
43,920

Common stock warrants (2)
6,289

 
6,289

 
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 March 31, 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.

19

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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.
Note 12Leases
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 have options and can extend the terms from one to 40 years. 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 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 March 31, 2019 and their placement within our condensed consolidated balance sheets:
Lease type
 
Balance Sheet Location
 
March 31, 2019
Assets
 
 
 
 
Finance
 
Property, plant, and equipment
 
$
10,649

Finance
 
Accumulated amortization
 
(2,919
)
Finance
 
Property and equipment, net
 
$
7,730

Operating
 
Operating lease assets
 
405,942

Total leased assets
 
 
 
$
413,672

 
 
 
 
 
Liabilities
 
 
 
 
Current
 
 
 
 
Finance
 
Other accrued liabilities
 
$
2,056

Operating
 
Operating lease liabilities
 
64,868

Long-term
 
 
 
 
Finance
 
Finance lease liabilities
 
6,366

Operating
 
Operating lease liabilities
 
344,620

Total lease liabilities
 
 
 
$
417,910

 
 
 
 
 
Weighted-average remaining lease term (in years)
 
 
Finance
 
 
 
6.37

Operating
 
 
 
11.39

Weighted-average discount rate
 
 
Finance
 
 
 
6.60
%
Operating
 
 
 
7.88
%

20

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 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 March 31, 2019
Finance lease cost
 
 
Amortization of finance lease assets
 
$
499

Interest on lease liabilities
 
156

Operating lease cost
 
23,412

Variable lease cost
 
1,630

Short-term lease cost
 
253

Net lease cost
 
$
25,950

The following table summarizes the supplemental cash flow information related to leases as follows (in thousands):
Lease type
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of liabilities
 
 
Financing cash flows from finance leases
 
$
342

Operating cash flows from finance leases
 
156

Operating cash flows from operating leases
 
21,045

Non-cash supplemental amounts
 
 
ROU assets obtained in exchange for new operating lease obligations
 
14,130

The table below includes the estimated future undiscounted cash flows for finance and operating leases as of March 31, 2019 (in thousands):
For the year ending December 31,
 
Finance leases
 
Operating leases
 
Total
2019 (1)
 
$
2,035

 
$
72,302

 
$
74,337

2020
 
2,151

 
79,713

 
81,864

2021
 
1,444

 
51,584

 
53,028

2022
 
1,238

 
49,454

 
50,692

2023
 
1,156

 
48,396

 
49,552

2024
 
751

 
40,211

 
40,962

Thereafter
 
1,098

 
198,494

 
199,592

Total lease payments
 
9,873

 
540,154

 
550,027

Less amount representing interest
 
(1,451
)
 
(130,666
)
 
(132,117
)
Present value of lease liabilities
 
$
8,422

 
$
409,488

 
$
417,910

_________________________________________________________
(1)
Represents period from April 1, 2019 to December 31, 2019.
Additionally, the Company has $5.9 million in future undiscounted cash flows for an operating lease of a retail facility that has not yet commenced. This lease is expected to commence when the lessor has made the location available to the Company to construct the store location.



21

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 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 13Commitments 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.
Tesoro Earn-out Dispute
On June 17, 2013, a wholly owned subsidiary of Par entered into a membership interest purchase agreement with Tesoro Corporation (“Tesoro,” which changed its name to Andeavor Corporation before being purchased by Marathon Petroleum Company in October 2018), pursuant to which the Par subsidiary purchased all of the issued and outstanding membership interests in Tesoro Hawaii, LLC. Tesoro Hawaii, LLC was initially renamed Hawaii Independent Energy, LLC, and subsequently renamed Par Hawaii Refining, LLC (“PHR”). The cash consideration for the acquisition was subject to an earn-out provision during the years 2014-2016, subject to, among other things, an annual earn-out cap of $20 million and an overall cap of $40 million. During 2016, we paid Tesoro a total of $16.8 million to settle the 2014 and 2015 earn-out periods. Tesoro disputed our calculation of the 2015 and 2016 earn-out amounts and asserted that it was entitled to an additional earn-out amount of $4.3 million for the 2015 earn-out period and a total earn-out amount of $8.3 million for the 2016 earn-out period. On March 22, 2018, Tesoro agreed to settle the earn-out dispute and release and discharge any related claims in exchange for our payment of $10.5 million.
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. PHR denies the USW’s allegations and intends to vigorously defend itself in connection with such claim in the grievance/arbitration process and any subsequent proceeding before the NLRB.
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.

22

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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 March 31, 2019, we have accrued $17.1 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 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. Although delayed, the Hawaii Department of Health has issued regulations that would require each major facility to reduce CO2 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). Those rules are pending final approval by the Hawaii State Government. The Hawaii refinery’s capacity to reduce fuel use and GHG emissions is limited. However, the state’s pending regulation allows, and the Hawaii refinery expects to be able to demonstrate, that additional reductions are not cost-effective or necessary in light of the state’s current GHG inventory and future year projections. The pending regulation allows for “partnering” with other facilities (principally power plants) that have already dramatically reduced greenhouse emissions or are on schedule to reduce CO2 emissions in order to comply with the state’s Renewable Portfolio Standards.
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,

23

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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.
The eastern location of our co-located Hawaii refinery and our Wyoming refinery were each granted a one-year small refinery exemption for the year 2017 from the U.S. Environmental Protection Agency (“EPA”).
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, 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. The EPA is expected to make small refinery status determinations for 2018 in the second quarter of 2019.
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 distillate 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 distillate 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”)

24

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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. Although the turnaround was completed during the third quarter of 2016, work related to the Consent Decree is ongoing. This work subjects us to risks associated with engineering, procurement, and construction of improvements and repairs to our facilities and related penalties and fines to the extent applicable deadlines under the Consent Decree are not satisfied, as well as risks related to the performance of equipment required by, or affected by, the Consent Decree. Each of these risks could have a material adverse effect on our business, financial condition, or results of operations.
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 March 31, 2019, Tesoro has reimbursed us for $12.2 million of our total capital expenditures incurred in connection with the Consent Decree. As of March 31, 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 three months ended March 31, 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.
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 March 31, 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.

25

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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 14Stockholders’ 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 March 31,
 
2019
 
2018
Restricted Stock Awards
$
946

 
$
843

Restricted Stock Units
254

 
150

Stock Option Awards
335

 
446

During the three months ended March 31, 2019, we granted 247 thousand shares of restricted stock and restricted stock units with a fair value of approximately $4.2 million. As of March 31, 2019, there were approximately $9.0 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 3.0 years.
During the three months ended March 31, 2019, we granted 300 thousand stock option awards with a weighted-average exercise price of $17.00 per share. As of March 31, 2019, there were approximately $5.1 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 1.7 years.
During the three months ended March 31, 2019, we granted 48 thousand performance restricted stock units to executive officers. 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 March 31, 2019, there were approximately $1.5 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 2.3 years.

26

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



Note 15Income (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 shares during each of the three months ended March 31, 2019 and March 31, 2018. 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 March 31,
 
2019
 
2018
Net income
$
61,092

 
$
15,185

Less: Undistributed income allocated to participating securities (1)
693

 
192

Net income attributable to common stockholders
60,399

 
14,993

Plus: Net income effect of convertible securities
2,756

 

Numerator for diluted income per common share
$
63,155

 
$
14,993

 
 
 
 
Basic weighted-average common stock shares outstanding
49,127

 
45,634

Plus: dilutive effects of common stock equivalents
6,423

 
43

Diluted weighted-average common stock shares outstanding
55,550

 
45,677

 
 
 
 
Basic income per common share
$
1.23

 
$
0.33

Diluted income per common share 
$
1.14

 
$
0.33

________________________________________________________
(1)
Participating securities include restricted stock that has been issued but has not yet vested.
For the three months ended March 31, 2019, our calculation of diluted shares outstanding excluded 359 thousand shares of unvested restricted stock and 1.9 million stock options. For the three months ended March 31, 2018, our calculation of diluted shares outstanding excluded 46 thousand shares of unvested restricted stock and 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 months ended March 31, 2019 and March 31, 2018, diluted income (loss) per share was determined using the if-converted method. Our calculation of diluted shares outstanding for the three months ended March 31, 2018 excluded 6.4 million common stock equivalents, as the effect would be anti-dilutive.
Note 16Income 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 months ended March 31, 2019, we recorded an income tax benefit of $64.8 million 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 March 31, 2019.
During the three months ended March 31, 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

27

PAR PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Interim Periods Ended March 31, 2019 and 2018



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 17Segment 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 March 31, 2019
 
Refining
 
Logistics
 
Retail
 
Corporate, Eliminations and Other (1)
 
Total
Revenues
 
$
1,146,064

 
$
45,209

 
$
99,831

 
$
(99,769
)
 
$
1,191,335

Cost of revenues (excluding depreciation)
 
1,062,568

 
26,530

 
71,338

 
(99,704
)
 
1,060,732

Operating expense (excluding depreciation)
 
55,255

 
2,364

 
16,055

 

 
73,674

Depreciation, depletion, and amortization
 
13,878

 
3,896

 
2,374

 
809

 
20,957

General and administrative expense (excluding depreciation)
 

 

 

 
11,665

 
11,665

Acquisition and integration costs
 

 

 

 
2,884

 
2,884

Operating income (loss)
 
$
14,363

 
$
12,419

 
$
10,064

 
$
(15,423
)
 
$
21,423

Interest expense and financing costs, net
 
 
 
 
 
 
 
 
 
(18,710
)
Debt extinguishment and commitment costs
 
 
 
 
 
 
 
 
 
(5,496
)
Other income, net
 
 
 
 
 
 
 
 
 
87

Change in value of common stock warrants
 
 
 
 
 
 
 
 
 
(1,282
)
Equity earnings from Laramie Energy, LLC
 
 
 
 
 
 
 
 
 
301

Loss before income taxes
 
 
 
 
 
 
 
 
 
(3,677
)
Income tax benefit
 
 
 
 
 
 
 
 
 
64,769

Net income