Inventory Financing Agreements

3 Months Ended

Mar. 31, 2022

The following table summarizes our outstanding obligations under our inventory financing agreements (in thousands):



	March 31, 2022		December 31, 2021
Supply and Offtake Agreement	$	750,474	$	569,158
Washington Refinery Intermediation Agreement	230,938		168,546
Obligations under inventory financing agreements	$	981,412	$	737,704

Supply and Offtake Agreement

Under the Second Amended and Restated Supply and Offtake Agreement (as amended, the “Supply and Offtake Agreement”), J. Aron & Company LLC (“J. Aron”) finances the majority of the crude oil utilized at the Hawaii refinery, holds legal title to the crude oil stored in our storage tanks before processing until title passes to us at the tank outlet, and buys refined products produced at our Hawaii refinery, after which we repurchase the refined products prior to selling them to our retail locations or third parties. Under the Supply and Offtake Agreement, J. Aron may enter into agreements with third parties whereby J. Aron remits payments to these third parties for refinery procurement contracts for which we will become immediately obligated to reimburse J. Aron. As of March 31, 2022, we had no obligations due to J. Aron under this contractual undertakings agreement. The Supply and Offtake Agreement expires May 31, 2024 (as extended, the “Expiration Date”), subject to a one-year extension at the mutual agreement of the parties at least 120 days prior to the Expiration Date.

The Supply and Offtake Agreement also makes available a discretionary draw facility (the “Discretionary Draw Facility”) to Par Hawaii Refining, LLC (“PHR”). As of March 31, 2022, and December 31, 2021, our outstanding balance under the Discretionary Draw Facility was equal to our borrowing base of $165.0 million and $126.2 million, respectively. On April 25, 2022, we entered into an amendment to the Supply and Offtake Agreement pursuant to which, among other things, the capacity under the Discretionary Draw Facility was increased from $165 million to $215 million. Please read Note 19—Subsequent Events for further information about the amendment.

Under the Supply and Offtake Agreement, we pay or receive certain fees from J. Aron based on changes in market prices over time. In 2021, we entered into multiple contracts to fix certain market fees for the period from May 2021 through May 2022 for $18.2 million. In 2022, we entered into additional contracts to fix certain fees for the month of March 2022 for $4.5 million. The amount due to or from J. Aron is recorded as an adjustment to our Obligations under inventory financing agreements as allowed under the Supply and Offtake Agreement. As of March 31, 2022, and December 31, 2021, we had payables of $7.0 million and $6.2 million, respectively.

Washington Refinery Intermediation Agreement

The Washington Refinery Intermediation Agreement with MLC provides a structured financing arrangement based on U.S. Oil’s crude oil and refined products inventories and associated accounts receivable. On March 9, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to advance the term expiry date from December 21, 2022 to March 31, 2023.

As of March 31, 2022, and December 31, 2021, our outstanding balance under the MLC receivable advances was equal to our borrowing base of $57.5 million and $54.5 million, respectively. Additionally, as of March 31, 2022, and December 31, 2021, we had approximately $211.2 million and $167.0 million in letters of credit outstanding through MLC’s credit support, respectively.

The following table summarizes the inventory intermediation fees, which are included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations, and Interest expense and financing costs, net related to the intermediation agreements (in thousands):


	Three Months Ended March 31,
		2022		2021
Net fees and expenses:
Supply and Offtake Agreement
Inventory intermediation fees		$	10,923	$	3,770
Interest expense and financing costs, net		1,244		846
Washington Refinery Intermediation Agreement
Inventory intermediation fees		$	750	$	971
Interest expense and financing costs, net		1,954		977

The Supply and Offtake Agreement 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.