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Inventory Financing Agreements | 9 Months Ended
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Sep. 30, 2022
Other Commitments [Abstract] |
Inventory Financing Agreements | Inventory Financing Agreements The following table summarizes our outstanding obligations under our inventory financing agreements (in thousands):
| September 30, 2022 |  | December 31, 2021
Supply and Offtake Agreement | $ | 652,733 |  |  | $ | 569,158 |
Washington Refinery Intermediation Agreement | 211,318 |  |  | 168,546 |
Obligations under inventory financing agreements | $ | 864,051 |  |  | $ | 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 September 30, 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 September 30, 2022 and December 31, 2021, our outstanding balance under the Discretionary Draw Facility was equal to our borrowing base of $147.1 million and $126.2 million, respectively. On April 25, 2022, we entered into an Amendment (the “S&O Amendment”) to the Supply and Offtake Agreement which, among other things, amended the maximum commitment amount under the Discretionary Draw Facility from $165 million to $215 million. The S&O Amendment further increased the limit in the borrowing base for eligible hydrocarbon inventory from $82.5 million to $107.5 million. The S&O Amendment further requires a $5.0 million reserve against the borrowing base at any time more than $165 million is outstanding in discretionary draw advances made to PHR; the reserve may be reduced by the posting of cash collateral by PHR in accordance with the terms of the S&O 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. We had no fixed market fees due to or from J. Aron as of September 30, 2022. As of December 31, 2021, we had a payable of $6.2 million. We did not recognize any fixed market fees for the three months ended September 30, 2022. We recognized fixed market fees of $8.8 million for the nine months ended September 30, 2022, and $6.0 million and $7.7 million for the three and nine months ended September 30, 2021, respectively, which were included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. Washington Refinery Intermediation Agreement The Washington Refinery Intermediation Agreement with Merrill Lynch Commodities, Inc. (“MLC”) provides a structured financing arrangement based on U.S. Oil & Refining Co. and certain affiliated entities’ 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. On May 9, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to increase the maximum borrowing capacity under the MLC receivable advances from $90 million to $115 million. On August 11, 2022, we and MLC entered into an amendment to the Washington Refinery Intermediation Agreement to establish the adjusted three-month term Secured Overnight Financing Rate ("SOFR") as the benchmark rate in replacement of the London Interbank Offered Rate ("LIBOR") and revise certain other terms and conditions. As of September 30, 2022 and December 31, 2021, our outstanding balance under the MLC receivable advances was equal to our borrowing base of $81.9 million and $54.5 million, respectively. Additionally, as of September 30, 2022, and December 31, 2021, we had approximately $194.2 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 September 30, |  | Nine Months Ended September 30,
|  |  |  | 2022 |  | 2021 |  | 2022 |  | 2021
Net fees and expenses: |  |  |  |  |  |  |  |  |  |
Supply and Offtake Agreement |  |  |  |  |  |  |  |  |  |
Inventory intermediation fees (1) |  |  |  | $ | 40,112 |  |  | $ | 4,988 |  |  | $ | 79,557 |  |  | $ | 14,038 |
Interest expense and financing costs, net |  |  |  | 1,453 |  |  | 754 |  |  | 4,555 |  |  | 2,078 |
Washington Refinery Intermediation Agreement |  |  |  |  |  |  |  |  |  |
Inventory intermediation fees |  |  |  | $ | 750 |  |  | $ | 750 |  |  | $ | 2,250 |  |  | $ | 2,486 |
Interest expense and financing costs, net |  |  |  | 2,636 |  |  | 1,276 |  |  | 7,533 |  |  | 3,387 |
___________________________________________________ (1)Inventory intermediation fees under the Supply and Offtake Agreement include market structure fees of $30.2 million and $0.8 million for the three months ended September 30, 2022 and 2021, and $54.1 million and $1.9 million for the nine months ended September 30, 2022 and 2021, respectively. 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.

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