On this page of StockholderLetter.com we present the 3/23/2023 shareholder letter from PAR PACIFIC HOLDINGS, INC. — ticker symbol PARR. Reading current and past PARR letters to shareholders can bring important insights into the investment thesis.

 •  3/23/2023 Letter Continued (Full PDF)
 •  3/18/2024 PARR Stockholder Letter
 •  3/20/2025 PARR Stockholder Letter
 •  More "Oil & Gas Refining & Marketing" Category Stockholder Letters
 •  PARR Benford's Law Stock Score = 96

PARR 3/23/2023 Shareholder/Stockholder Letter Transcript:

2022
A N N U A L
R E P O R T


Dear Fellow Shareholders,
2022 was an extraordinary year as we generated record financial
results, bolstered our capital structure with significant debt reduction
and returned to a growth posture.
2022 was an extraordinary year as we generated record financial results, bolstered our capital
structure with significant debt reduction and returned to a growth posture. Adjusted EBITDA
improved from $126 million in 2021 to $643 million in 2022. Adjusted Earnings per share
improved from $(0.62) in 2021 to $7.93 in 2022. 2022 cash from operations was over $7 per
share. Book value improved by 143% from $266 million at year end 2021 to $645 million by
year end 2022. We reduced net debt by $443 million during the year from $468 million at year
end 2021 to $25 million at year end 2022. Our liquidity exceeded $575 million at year end
2022. And, finally, we announced the acquisition of ExxonMobil   s Billings refinery and related
logistics and marketing operations in the Rockies, nearly doubling our mainland refining
capacity. We expect to close that transaction before mid-year 2023. In summary, we generated
significant profits from our existing business and reinvested those profits in a highly accretive
growth transaction that further improves our business profile and competitiveness.
2022 market conditions were strong by any measure, driven by: 1) rebounding refined
product demand as global activity levels surged back to pre-pandemic levels; 2) reduced
refining capacity with over 2.5 million barrels per day (mmbpd) of net closures between 2020
and 2022; and 3) expanding risk premia for waterborne refined products due to European
inventory supply chain disruptions created by the Russia     Ukraine conflict. While the macro
backdrop was certainly favorable, the foundation for this monumental shift in our financial
results was built over the last three years when we not only survived the pandemic but
positioned our enterprise for long term success. We made the difficult decision to shut down
the smaller of our two Hawaii refineries, invested over $88 million in plant-wide turnarounds
between 2020 and 2022, and restructured many of our customer contracts. Each of these
decisions and many more were key to capturing the strong market conditions of the last
three quarters.
1

Discussion of Business Units
REFINING
Our 2022 refining segment Adjusted EBITDA was $567 million, compared to $53 million
in 2021. The more than $500 million profit improvement reflects above mid-cycle market
conditions for most of the year, strong reliability and our industry-leading distillate yield.
In Hawaii, we achieved record profitability, more than recovering the losses incurred during the
pandemic. Over the last three years, Hawaii market conditions have shifted from record lows to
record highs. The Singapore 3-1-2 index from 2020 through 2022 improved from $3.15 to $6.22
to $25.43 per barrel (bbl), annually. The distillate market has been the largest factor pulling the
improvement in the index, complementing the distillate orientation of our Hawaii sales mix.
The Singapore gasoil crack spread to Brent improved to $36.41 per bbl in 2022 from $6.82 per
bbl in 2021. Hawaii jet demand returned to near pre-pandemic levels towards the end of 2022.
Domestic Hawaii tourist arrivals actually exceeded 2019 levels, while international travelers
(particularly Japanese tourists) remain well below 2019 levels.
We are pleased with the contributions Hawaii delivered this
year as the efforts from the prior three years manifested in our
financial results.
The Singapore market continues to evolve with growth in Chinese refining capacity largely
offset by closures in other Asia-Pacific regions. Chinese policies continue to signal a long-term
focus on serving their domestic market and reducing exports over time. By 2025, the Chinese
government plans to cap the country   s refining capacity at 20 mmbpd and eliminate refined
product exports. Despite China spending the majority of 2022 in some form of COVID
lockdowns and 500 mbpd of new Chinese refining capacity coming online in 2022, the country   s refined product export volumes averaged 551 mbpd for 2022, 18% below 2021 volumes.
Singapore inventory levels for gasoil and kerosene remain well below 5-year lows. Several
Asia-Pacific refiners have become the marginal suppliers of diesel to Europe in the face of
Russian sanctions on refined products. This trend bears watching over the course of 2023 but
most market watchers have been surprised at the Chinese discipline in the export markets in
the face of increased capacity and diminished local demand.
2022 Combined Product Yield
2022 Inland vs. Waterborne Crude Exposure
Other Waterborne 47%
Asphalt 6%
ANS 13%
Other 7%
Cold Lake 10%
LSFO 18%
Distillate 40%
Bakken 20%
Gasoline 29%
Powder River Basin 10%
   Inland Exposure    Waterborne Exposure
2

Despite the volatility surrounding the sanctioning of Russian crude oil (Russian crude represented approximately 21% of our 2021 Hawaii crude slate) and the corresponding shifts in global
trade flows, we successfully adjusted our Hawaii crude diet and contained total costs. Our landed
crude differential versus Brent climbed by approximately $4.22 per bbl compared to 2021, a
modest offset compared to favorable Singapore 3-1-2 product trends. The largest factors driving
the increase were the rapid rise in backwardation and freight costs throughout the year.
We are pleased with the contributions Hawaii delivered this year as the efforts from the prior
three years manifested in our financial results. The best metric to demonstrate our progress is to
evaluate our Adjusted Gross Margin per bbl versus our Hawaii Combined Index (or our capture
of this index). We believe this metric best measures the business unit   s performance relative to
market conditions.
$/bbl
Hawaii Adjusted Gross Margin Capture ($/bbl)
$20.00
$17.50
$15.00
$12.50
$10.00
$7.50
$5.00
$2.50
$$(2.50)
$(5.00)
$(7.50)
2019
Hawaii Capture
2020
2021
Hawaii Adj. Gross Margin
2022
Combined Index
The largest factors impacting Hawaii capture were related to supply chain and inventory price
risk management. Risk management costs were high this year given market volatility; however,
these costs ensure we maximize the local market spread between crude oil and refined products,
while minimizing exposure to changes in the underlying, absolute price of hydrocarbons. To
expand further, the quantity of inventory we hold on-island is significant relative to our monthly
sales. Typically, we hold between 130% to 200% of monthly sales as inventory. Simply put, our
inventory turns are low compared to a mainland refiner due to the lengthy supply chain required
to support a remote market like Hawaii. To manage this risk, we hedge the majority of our inventory to protect against changes in the price of crude oil. The price of this insurance premium
is variable and depends upon the shape of the forward commodity curves. As the forward curve
becomes more backwardated, the cost of insurance goes up. Insuring our inventory value was
expensive this year, yet we believe this risk management strategy is superior to the longer-term
returns on capital we could generate by dedicating excess capital to the business unit to effectively
absorb the large swings in liquidity. The cost of this balance sheet risk management activity flows
through our GAAP income statement as well as Adjusted EBITDA.
3



 3/23/2023 Letter Continued (Full PDF)