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Inventory Financing Agreements | 12 Months Ended
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Dec. 31, 2023
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,
| 2023 |  | 2022
Supply and Offtake Agreement | $ | 594,362 |  |  | $ | 732,511 |
Washington Refinery Intermediation Agreement | — |  |  | 160,554 |
LC Facility due 2024 | — |  |  | — |
Obligations under inventory financing agreements | $ | 594,362 |  |  | $ | 893,065 |
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”). Under the Supply and Offtake Agreement, we would have been subject to an early termination fee if we terminated the Supply and Offtake Agreement 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 $15 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 (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. On February 13, 2023, we entered into an amendment to the Supply and Offtake Agreement to, among other things, facilitate entry into the Term Loan Credit Agreement. On June 21, 2023, we entered into an amendment (the “June 2023 S&O Amendment”) to the Supply and Offtake Agreement to establish the Secured Overnight Financing Rate ("SOFR"), as defined in the Supply and Offtake Agreement, as the benchmark rate in replacement of the London Interbank Offered Rate ("LIBOR") and revise certain other terms and conditions, effective July 1, 2023. On July 26, 2023, we entered into an amendment (the “July 2023 S&O Amendment”) to the Supply and Offtake Agreement which, among other things, allowed PHR to enter into a crude oil procurement contract supported by a letter of credit under the LC Facility (as defined below) and have its purchases funded by J. Aron, subject to certain conditions. Please read below for further information on the LC Facility. 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 and 2022, we entered into multiple contracts to fix certain market fees for the period from January 2022 through May 2022 for $8.7 million. For the year ended December 31, 2023, we did not enter into any contracts to fix market fees related to our Supply and Offtake Agreement. 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 did not recognize any fixed market fees due for the year ended December 31, 2023. We recognized fixed market fees of $8.8 million and $13.5 million for the years ended December 31, 2022, and 2021, respectively, which were included in Cost of revenues (excluding depreciation) on our consolidated statements of operations. LC Facility due 2024 On July 26, 2023, PHR, as borrower, the lenders and letter of credit issuing banks party thereto (collectively, the “LC Facility Lenders”), MUFG Bank, Ltd., as administrative agent (the “LC Facility Agent”), sub-collateral agent, joint lead arranger and sole bookrunner, Macquarie Bank Limited, as joint lead arranger, and U.S. Bank Trust Company, National Association, as collateral agent (the “Collateral Agent”), entered into an Uncommitted Credit Agreement (the “LC Facility Agreement”) whereby the LC Facility Lenders agree, on an uncommitted and absolutely discretionary basis, to consider making revolving credit loans and issuing and participating in letters of credit in the maximum available amount of $120.0 million in the aggregate (the “LC Facility”) with the right to request an increase up to $350.0 million in the aggregate, subject to certain conditions. Letters of credit issued under the LC Facility are intended to finance and provide credit support for certain of PHR’s purchases of crude oil. In addition, revolving credit loans may be used to pay suppliers. The LC Facility will mature on July 25, 2024, unless the obligations are accelerated and the maximum credit limits of the LC Facility Lenders are terminated prior to such date. The revolving credit loans under the LC Facility bear interest at a 1) SOFR rate plus the applicable margin of 2.5%, 2) cost of funds rate plus applicable margin of 2.5% or 3) alternate base rate plus 1.5%, as more particularly described in the LC Facility Agreement. PHR has agreed to pay certain fees and commissions with respect to letters of credit under the LC Facility, including, but not limited to, a letter of credit commission, in an amount equal to the greater of $750 (in dollars) and (1) 2.00% per annum of the face amount of any trade letter of credit, or (2) 2.25% per annum of the face amount of any performance letter of credit, each payable monthly in arrears. In addition, PHR shall pay a fronting fee equal to 0.25% of the face amount of each letter of credit issued by a letter of credit issuing bank, payable monthly in arrears. The LC Facility Agreement requires PHR to comply with various covenants, including compliance with the minimum liquidity covenant. PHR agrees that it shall not permit the liquidity of PHR for any three consecutive business days to be less than $15 million at any time, with at least $15 million of such liquidity consisting of cash and cash equivalents. PHR has granted a lien and security interest in certain of its assets to the Collateral Agent. PHR is also required to provide cash collateral to the LC Facility Agent as a condition to issuance of certain letters of credit. On October 4, 2023, PHR, and Par Petroleum, LLC, obtained the written consent from the lenders party to the LC Facility to permit the Second Amendment to ABL Credit Facility (as defined in Note 14—Debt) and to amend certain defined terms or provisions in the ABL Credit Facility, pursuant to that certain Limited Consent to Uncommitted Credit Agreement dated as of October 3, 2023, among PHR, Par Petroleum, LLC, each of the lenders party thereto, LC Facility Agent, and U.S. Bank Trust Company, National Association, solely in its capacity as the collateral agent (the “Limited Consent”). Refer to Note 14—Debt for further information on the Second Amendment to ABL Credit Facility. Washington Refinery Intermediation Agreement Prior to December 31, 2023, we were party to the Washington Refinery Intermediation Agreement with MLC, which provided 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 purchased crude oil supplied from third-party suppliers and MLC provided credit support for such crude oil purchases. MLC’s credit support consisted 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 held title to all crude oil and refined products inventories at all times and pledged such inventories, together with all receivables arising from the sales of the same, exclusively to MLC. On October 4, 2023, U.S. Oil entered into a wind-down and termination agreement (the “Wind-Down Agreement”) with MLC, which provided for the wind down of the respective obligations of MLC and U.S. Oil. Under the Wind-Down Agreement, in exchange for cash collateral provided by U.S. Oil to MLC, the payment of certain fees by U.S. Oil to MLC, and the satisfaction of other conditions precedent specified in the Wind-Down Agreement, MLC released all of its liens and security interests in all collateral, and MLC and U.S. Oil terminated the First Lien ISDA Agreement, Collateral Agreement, and all other guarantee and collateral documents, other than certain surviving obligations and certain other obligations which specifically continue under the terms of the Wind-Down Agreement. In connection with the Wind-Down Agreement, we recognized a termination fee of $1.5 million, which were recorded in Debt extinguishment and commitment costs on our consolidated statement of operations for the year ended December 31, 2023. The cash paid to settle the obligation is included in Payments for termination of inventory financing agreements in our consolidated statements of cash flows for the year ended December 31, 2023. As of December 31, 2023, there were no outstanding obligations under the Washington Refinery Intermediation Agreement. The following table summarizes our outstanding borrowings, letters of credit, and contractual undertaking obligations under the intermediation agreements (in thousands):
| December 31,
| 2023 |  | 2022
Discretionary Draw Facility |  |  |
Outstanding borrowings (1) | $ | 165,459 |  |  | $ | 204,843 |
Borrowing capacity | 175,891 |  |  | 204,843 |
MLC receivable advances |  |  |
Outstanding borrowings (1) | — |  |  | 56,601 |
Borrowing capacity | — |  |  | 56,601 |
LC Facility due 2024 |  |  |
Outstanding borrowings | — |  |  | — |
Borrowing capacity | 120,000 |  |  | — |
MLC issued letters of credit | — |  |  | 115,001 |
LC Facility issued letters of credit | 13,000 |  |  | — |
______________________________________________________ (1)Borrowings 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 borrowings 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,
|  |  |  | 2023 |  | 2022 |  | 2021
Net fees and expenses: |  |  |  |  |  |  |  |
Supply and Offtake Agreement |  |  |  |  |  |  |  |
Inventory intermediation fees (1) |  |  |  | $ | 56,164 |  |  | $ | 100,610 |  |  | $ | 21,612 |
Interest expense and financing costs, net |  |  |  | 7,149 |  |  | 6,150 |  |  | 3,015 |
Washington Refinery Intermediation Agreement |  |  |  |  |  |  |  |
Inventory intermediation fees |  |  |  | 2,250 |  |  | 3,000 |  |  | 3,236 |
Interest expense and financing costs, net |  |  |  | 9,280 |  |  | 10,111 |  |  | 4,900 |
LC Facility due 2024 |  |  |  |  |  |  |  |
Interest expense and financing costs, net |  |  |  | 1,667 |  |  | — |  |  | — |
___________________________________________________ (1)Inventory intermediation fees under the Supply and Offtake Agreement include market structure fees of $13.5 million, $63.3 million, and $4.0 million for the years ended December 31, 2023, 2022, and 2021, respectively. The Supply and Offtake Agreement and, prior to its termination, 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 15—Derivatives for further information.

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