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Inventory Financing Agreements | 12 Months Ended
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Dec. 31, 2022
Other Commitments [Abstract] |
Inventory Financing Agreements | Inventory Financing Agreements The following table summarizes our outstanding obligations under our inventory financing agreements (in thousands):
| December 31,
| 2022 |  | 2021
Supply and Offtake Agreement | $ | 732,511 |  |  | $ | 569,158 |
Washington Refinery Intermediation Agreement | 160,554 |  |  | 168,546 |
Obligations under inventory financing agreements | $ | 893,065 |  |  | $ | 737,704 |
Supply and Offtake Agreement We have a supply and offtake agreement with J. Aron to support our Hawaii refining operations (the “Supply and Offtake Agreement"). On June 1, 2021, we entered into the second amended and restated supply and offtake agreement, which amended and restated the first amended and restated supply and offtake agreement in its entirety. During the term of the Supply and Offtake Agreement, J. Aron and we will identify mutually acceptable contracts for the purchase of crude oil from third parties. Per the agreement, J. Aron will provide up to 150 Mbpd of crude oil to our Hawaii refinery. Additionally, we will sell, and J. Aron will 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. Under the 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. The agreement also provides for the lease of crude oil and certain refined product storage facilities to J. Aron. 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. Under the Supply and Offtake Agreement, we are subject to an early termination fee if we terminate the Supply and Offtake Agreement on or prior to May 31, 2023. Following the expiration or termination of the agreement, 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. Under the Supply and Offtake Agreement, Par Hawaii Refining, LLC (“PHR”) is required to maintain minimum liquidity of not less than $15 million for any three consecutive business days, with at least $7.5 million of such liquidity consisting of cash and cash equivalents. Though title to the crude oil and certain refined product inventories resides with J. Aron, the Supply and Offtake Agreement is accounted for similar to a product financing arrangement; therefore, the crude oil and refined products inventories will continue to be included in our 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. Prior to July 1, 2021, the Supply and Offtake Agreement also included a deferred payment arrangement whereby we could defer payments owed under the agreements up to the lesser of $165 million or 85% of the eligible accounts receivable and inventory. The deferred amounts under the deferred payment arrangement bore interest at a rate equal to three-month LIBOR plus 3.50% per annum. We also paid a deferred payment availability fee equal to 0.75% of the unused capacity under the deferred payment arrangement. Effective July 1, 2021, a discretionary draw facility (the “Discretionary Draw Facility”) became available to PHR up to but excluding the Expiration Date. Under the Discretionary Draw Facility, J. Aron agreed to make advances to PHR from time to time at the request of PHR, subject to the satisfaction of certain conditions precedent, in an aggregate principal amount at any one time outstanding not to exceed the lesser of $165 million or the sum of the borrowing base, which is calculated as (x) 85% of the eligible accounts receivables, plus (y) the lesser of $82.5 million and 85% of eligible hydrocarbon inventory, minus (z) such reserves as established by J. Aron in respect of eligible receivables and eligible hydrocarbon inventory. Prior to June 1, 2022, the advances under the Discretionary Draw Facility bore interest at a rate equal to three-month LIBOR plus 4.00% per annum. Beginning on June 1, 2022, the advances bear interest at a rate equal to LIBOR (or LIBOR equivalent) plus an applicable spread between 3.50% and 4.00% to be determined annually based on certain financial ratios. We also pay a discretionary draw availability fee equal to 0.75% of the unused capacity under the Discretionary Draw Facility. On April 25, 2022, we entered into an 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 and increased the limit in the borrowing base for eligible hydrocarbon inventory from $82.5 million to $107.5 million. The 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 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 2017, we fixed the market fee for the period from June 1, 2018 through May 2021 for an additional $2.2 million. In 2020, we fixed the market fee for the period from February 1, 2020 through April 1, 2021 for an additional $0.8 million to be settled in fifteen payments. 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 with J. Aron 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 December 31, 2022. As of December 31, 2021, we had a payable of $6.2 million. We recognized fixed market fees of $8.8 million, $13.5 million, and $1.3 million for the years ended December 31, 2022, 2021, and 2020, respectively, which were included in Cost of revenues (excluding depreciation) on our consolidated statements of operations. Washington Refinery Intermediation Agreement We are party to the Washington Refinery Intermediation Agreement with MLC, which 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 the same, exclusively to MLC. On February 11, 2021, we and MLC amended the Washington Refinery Intermediation Agreement and extended the term from June 30, 2021 to March 31, 2022. On December 17, 2021, we and MLC amended the Washington Refinery Intermediation Agreement to further extend the term through December 21, 2022 and to revise certain other terms and conditions in the Washington Refinery Intermediation Agreement. On March 9, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to advance the term expiry date to March 31, 2023. On November 2, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to further extend the term through March 31, 2024. 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 (the “MLC receivable advances”) and additional advances based on crude oil and products inventories. Prior to May 9, 2022, the maximum borrowing capacity under the MLC receivable advances was $90.0 million. On May 9, 2022, we and MLC amended the Washington Refinery Intermediation Agreement to increase the maximum borrowing capacity under the MLC receivable advances to $115 million. The maximum borrowing capacity was reduced to $110 million under the amendment to the Washington Refinery Intermediation Agreement dated November 2, 2022. The MLC receivable advances bore interest at a rate equal to three-month LIBOR plus 3.25% per annum prior to August 11, 2022. On August 11, 2022, we and MLC entered into an amendment to the Washington Refinery Intermediation Agreement to establish adjusted three-month term Secured Overnight Financing Rate ("SOFR") as the benchmark rate in replacement of LIBOR and revise certain other terms and conditions. We also pay an availability fee equal to 0.75% of the unused capacity under the MLC receivable advances. The following table summarizes our outstanding borrowings, letters of credit, and contractual undertaking obligations under the intermediation agreements (in thousands):
| December 31,
| 2022 |  | 2021
Discretionary Draw Facility |  |  |
Outstanding borrowings (1) | $ | 204,843 |  |  | $ | 126,225 |
Borrowing capacity | 204,843 |  |  | 126,225 |
MLC receivable advances |  |  |
Outstanding borrowings (1) | 56,601 |  |  | 54,538 |
Borrowing capacity | 56,601 |  |  | 54,538 |
J. Aron payment undertaking obligations | — |  |  | — |
MLC issued letters of credit | 115,001 |  |  | 166,950 |
______________________________________________________ (1)Amounts outstanding under the Discretionary Draw Facility and MLC receivable advances are included in Obligations under inventory financing agreements on our consolidated balance sheets. Changes in the amount outstanding under these arrangements are included within Cash flows from financing activities on the consolidated statements of cash flows. The following table summarizes the inventory intermediation fees, which are included in Cost of revenues (excluding depreciation) on our consolidated statements of operations, and Interest expense and financing costs, net related to the intermediation agreements (in thousands):
|  |  |  | Year Ended December 31,
|  |  |  | 2022 |  | 2021 |  | 2020
Net fees and expenses: |  |  |  |  |  |  |  |
Supply and Offtake Agreement |  |  |  |  |  |  |  |
Inventory intermediation fees (1) |  |  |  | $ | 100,610 |  |  | $ | 21,612 |  |  | $ | 12,034 |
Interest expense and financing costs, net |  |  |  | 6,150 |  |  | 3,015 |  |  | 3,044 |
Washington Refinery Intermediation Agreement |  |  |  |  |  |  |  |
Inventory intermediation fees |  |  |  | $ | 3,000 |  |  | $ | 3,236 |  |  | $ | 4,112 |
Interest expense and financing costs, net |  |  |  | 10,111 |  |  | 4,900 |  |  | 2,791 |
___________________________________________________ (1)Inventory intermediation fees under the Supply and Offtake Agreement include market structure fees of $63.3 million and $4.0 million for the years ended December 31, 2022, and 2021, respectively, and a market structure benefit of $3.0 million for the year ended December 31, 2020. 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 14—Derivatives for further information.

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