Executive Summary / Key Takeaways

• Record Earnings Power with a Caveat: Par Pacific's Q3 2025 adjusted EBITDA of $372 million included a massive $203 million benefit from Small Refinery Exemptions (SREs) , but even the underlying $170 million core EBITDA represents a dramatic operational improvement, driven by near-record throughput, record-low production costs, and exceptional margin capture across its geographically isolated refining system.

• Strategic Transformation Through Capital Allocation: Management is aggressively returning capital to shareholders while pivoting toward renewables, having repurchased 9% of shares year-to-date and closed a $100 million Hawaii SAF joint venture that retains a 63.5% controlling stake, effectively monetizing the project's value without surrendering operational control or future upside.

• Regional Moats Defend Against Scale Disadvantage: PARR's Hawaii refinery operates as a near-monopoly with 111-125% margin capture, while its integrated logistics and retail networks create captive demand that larger competitors cannot easily replicate, partially offsetting its smaller scale versus majors like PBF Energy (PBF) and HF Sinclair (DINO).

• The SRE Dependency Risk: The company's earnings are highly sensitive to political and regulatory decisions, with the $203 million SRE benefit representing nearly 55% of Q3 adjusted EBITDA; future SRE approvals remain uncertain and highly politicized, creating potential earnings volatility that investors must monitor closely.

• Distillate-Focused Positioning for Market Tightness: Management's "max distillate mode" strategy positions PARR to benefit from tightening West Coast supply as California refineries exit, while its Montana and Wyoming assets capture strong Rockies margins, though Washington's 69% capture rate reflects regional jet fuel weakness that may persist.

Setting the Scene: The Geography of Cash Flow

Par Pacific Holdings, incorporated in 1984 and headquartered in Houston, operates as a regional downstream energy company that has transformed from a simple refiner into an integrated logistics and retail platform serving isolated markets. The company's current positioning stems from a decade of strategic acquisitions: the Hawaii refinery from Tesoro in 2013, the Wyoming refinery in 2016, and most recently the Montana refinery from Exxon Mobil (XOM) in 2022. These deals created a footprint spanning the Pacific islands, the Rocky Mountains, and the Pacific Northwest—a geographic diversity that insulates PARR from single-market disruptions while exposing it to distinct regional margin dynamics.

The business model generates cash through three segments that reinforce each other. The Refining segment converts crude into gasoline, diesel, and asphalt, serving as the core earnings engine. The Logistics segment moves these products through pipelines, terminals, and marine vessels, capturing fees regardless of commodity price swings. The Retail segment sells fuel and merchandise directly to consumers, providing stable demand and countercyclical earnings when refining margins compress. This integration creates a moat: PARR doesn't just make products; it controls their distribution in markets where alternatives are limited by geography or infrastructure.

Industry structure favors PARR's niche approach. The U.S. refining sector has consolidated around large independent players like PBF Energy (1 million bpd capacity) and HF Sinclair (678,000 bpd), who compete on scale and complexity. PARR's 219,000 bpd system is materially smaller, but its assets occupy strategic dead ends. The Hawaii refinery supplies 100% of the state's jet fuel and the majority of its gasoline and diesel, with no pipeline connections to the mainland. The Wyoming and Montana refineries serve markets where trucking distances create natural barriers to coastal competitors. This regional focus translates to pricing power: Hawaii's margin capture reached 125% in Q3 2025 when excluding hedging impacts, meaning the refinery captured more than the benchmark crack spread due to its logistical advantages.

Technology, Products, and Strategic Differentiation

PARR's competitive edge lies in operational efficiency rather than proprietary technology. The Hawaii refinery achieved record throughput of nearly 90,000 bpd in September 2025 while driving production costs down to $6.13 per barrel, a new record low. This demonstrates that even without the scale of PBF's complex coking units, PARR can compete through sheer operational excellence. The Montana refinery similarly hit record throughput of 58,000 bpd with production costs at $8.76 per barrel, proving that management's cost reduction initiatives—targeting $30-40 million in annual savings—are taking hold across the system.

The logistics network provides a hidden moat. The single point mooring (SPM) in Hawaii allows crude imports without congested port delays, while the unit train-capable rail terminal in Washington enables efficient product movements to inland markets. These assets are not easily replicated: building a comparable marine terminal would cost hundreds of millions and face years of permitting, while rail access in the Pacific Northwest is capacity-constrained. This infrastructure shows up in segment results: Logistics adjusted EBITDA hit a record $37 million in Q3, up $7 million sequentially, as summer operations normalized and system utilization increased. Consequently, PARR earns fees on every barrel it moves through its own system, creating a tollbooth model that competitors relying on third-party infrastructure cannot match.

The retail segment's performance validates the integrated strategy. With 119 outlets across Hawaii, Washington, and Idaho, the Retail segment generated record LTM adjusted EBITDA of $86 million in Q3, its third consecutive quarter of records. Same-store fuel revenue grew 1.8% while in-store revenue rose 0.9%, demonstrating pricing power even in a soft consumer environment. This counters the scale disadvantage versus PBF's wholesale focus: PARR captures the full fuel value chain from crude to consumer, while PBF must share margins with jobbers and retailers. The convenience store operations also provide demand stability, as fuel sales remain relatively inelastic and merchandise sales diversify revenue away from commodity cycles.

The Hawaii Sustainable Aviation Fuel (SAF) project represents the strategic pivot. The joint venture with Mitsubishi and ENEOS, which closed in October 2025, brought in $100 million in cash while retaining a 63.5% controlling stake. Management expects the facility to start contributing financially in Q1 2026 after commissioning and credit pathway establishment. It allows PARR to participate in the energy transition without bearing the full $200+ million capital cost alone, while leveraging its existing refinery infrastructure to achieve very attractive per-gallon operating expenses. The project is "inside the fence line," meaning it shares utilities, labor, and logistics with the main refinery—capital efficiency that standalone renewable projects cannot replicate.

Financial Performance & Segment Dynamics: Evidence of Execution

Q3 2025 results serve as proof of concept for PARR's strategy, but require careful dissection. The headline numbers are stunning: net income of $262.6 million versus $7.5 million in Q3 2024, driven by a $321.8 million increase in refining operating income. However, $199.5 million of this came from SRE benefits for 2019-2024 compliance periods. Importantly, while the one-time boost is real cash, investors must focus on the underlying operational improvement: refining adjusted EBITDA still reached $337.6 million, up from $20.1 million year-over-year, even excluding the SRE benefit.

The refining segment's performance reveals multiple drivers beyond SREs. The $125.3 million increase from higher crack spreads at Washington, Montana, and Hawaii refineries reflects both market conditions and PARR's ability to capture them. Hawaii's 111% margin capture (125% excluding hedging) shows the value of isolation, while Montana and Wyoming's 93% and 91% captures demonstrate solid execution post-turnaround. Washington's weaker 69% capture, impacted by widening jet-to-diesel discounts, highlights a regional vulnerability: the Pacific Northwest's jet fuel surplus creates a product mix headwind that PARR cannot easily offset without more complex upgrading units that larger competitors like HF Sinclair possess.

The nine-month trends confirm broad-based strength. Refining throughput averaged 198,000 bpd, near record levels, while production costs fell to historic lows. Retail adjusted EBITDA grew to $63.9 million from $53.8 million year-over-year, driven by higher fuel margins, merchandise margins, and volumes. Logistics adjusted EBITDA rose to $96.8 million from $87.1 million, benefiting from higher third-party revenues and lower maintenance costs. These improvements occurred despite the Wyoming refinery being idled from February to late April due to a crude heater furnace incident—a $30-40 million EBITDA headwind that management navigated while still delivering record results.

Capital allocation demonstrates management's confidence. Year-to-date share repurchases of 5.7 million shares reduced the basic share count by over 9%, with $165 million still authorized under the $250 million program. Gross term debt of $642 million represents just 3x LTM Retail and Logistics EBITDA, at the low end of the company's 3-4x target range. This shows PARR is not overleveraged like Delek US (DK) (debt-to-equity of 8.22) and has firepower for growth investments or further returns. The $735 million liquidity position ($159 million cash plus $576 million ABL availability) exceeds management's $250-300 million minimum target, indicating excess capital that can be deployed opportunistically.

Outlook, Management Guidance, and Execution Risk

Management's Q4 2025 guidance reveals both optimism and realism. System-wide throughput is projected at 184,000-193,000 bpd, down from Q3's 198,000 bpd, reflecting seasonal market conditions and planned crude unit inefficiencies in Washington. The company expects to address these inefficiencies during a Q1 2026 outage, showing a willingness to sacrifice short-term volume for long-term reliability—a discipline that larger competitors like PBF, with more complex turnaround schedules, must also manage.

The distillate-focused strategy positions PARR for tightening markets. Management noted that unplanned outages on the West Coast have narrowed jet-to-diesel spreads, with prompt jet now trading at typical spreads to diesel in the Pacific Northwest. PARR runs in "max distillate mode" across most refineries, capturing value from diesel and jet fuel while minimizing gasoline exposure. As California refineries exit in late 2025 and early 2026, the import parity balance will shift, requiring more product imports from Asia—a dynamic that benefits PARR's Tacoma refinery due to its marine access and integrated logistics.

The Hawaii SAF project timeline carries execution risk. Management expects no financial contributions until Q1 2026, with commissioning and credit pathway establishment requiring "a quarter or two" to achieve run-rate contributions. This delay is typical for renewable projects but creates a near-term earnings gap that investors must monitor. The project's attractiveness stems from its "inside the fence line" location, which management estimates will yield very attractive and highly competitive per-gallon operating expenses versus standalone renewable facilities. However, success depends on establishing CI (carbon intensity) scores that qualify for premium credits—a process that remains uncertain.

Cost reduction initiatives remain on track. The company-wide target of $30-40 million in annual savings is achievable through lower corporate expenses, reduced turnaround costs (thanks to the Wyoming outage effectively completing some 2026 maintenance), and operational efficiencies. Corporate adjusted EBITDA losses narrowed to $71.9 million for the nine months versus $74.7 million prior year, with CEO transition costs from 2024 not repeating. This discipline is critical for a company of PARR's scale competing against larger, more efficient peers.

Risks and Asymmetries: What Can Break the Thesis

The SRE dependency represents the most material near-term risk. Management candidly called the SRE timeline "highly politicized" and "difficult for them to maintain a schedule," acknowledging that future benefits are uncertain. If SREs are denied for 2025 and beyond, PARR would face a $200+ million annual EBITDA headwind, potentially cutting adjusted EBITDA to the $170-200 million range. This would still represent solid operational performance but would fundamentally alter the valuation narrative. The company's guidance to "be prepared for a wide range of outcomes" on RIN management underscores this uncertainty.

Environmental liabilities create long-term cash flow uncertainty. The Hawaii refinery operates under a 2016 EPA consent decree for Clean Air Act violations, while the Wyoming refinery faces ongoing compliance requirements dating to the 1970s. The company has accrued $12.1 million for well-understood remediation components and anticipates $11.6 million for a new wastewater treatment system, but acknowledges that some investigation and remediation costs are "not reasonably estimable." This contrasts with larger competitors like HF Sinclair, who have more resources to absorb such costs and more negotiating leverage with regulators.

Scale disadvantage versus peers limits strategic options. PARR's 219,000 bpd capacity is less than one-third of PBF's and one-fifth of HF Sinclair's, constraining its ability to negotiate crude supply deals and spreading fixed costs over fewer barrels. This shows up in production costs: while PARR achieved record lows of $6.13 per barrel in Hawaii, larger competitors with more complex coking units can process cheaper, heavier crudes and achieve even lower per-barrel costs. The Montana $10 per barrel OpEx target is achievable but still higher than the most efficient Gulf Coast refineries.

The Wyoming incident highlights operational fragility. A single equipment failure idled the refinery for over two months, costing an estimated $30-40 million in lost EBITDA. While the facility returned to full production ahead of schedule, the event demonstrates that PARR's smaller system has less redundancy than multi-refinery peers like Delek US or CVR Energy (CVI), who can redirect feedstocks and products during outages. The decision to defer the 2026 Wyoming turnaround due to work completed during the outage is pragmatic but may defer necessary maintenance, creating future reliability risks.

Trade policy and geopolitical tensions pose external threats. New tariffs adopted in August and October 2025 could increase production costs if not passed through to customers, while Middle East disruptions and Red Sea shipping issues increase crude price volatility and freight costs. PARR's Hawaii operations are particularly exposed to shipping cost inflation, as all crude must be imported via marine vessels. Larger competitors with Gulf Coast access and integrated trading arms can better hedge these risks.

Valuation Context: Pricing the Regional Premium

At $43.70 per share, PARR trades at 9.42 times trailing earnings and 6.74 times EV/EBITDA, based on LTM metrics that include the massive Q3 SRE benefit. This multiple appears attractive versus peers: PBF Energy trades at negative earnings due to margin pressure, Delek US at 11.18x EV/EBITDA despite weaker operations, and HF Sinclair at 8.39x EV/EBITDA. However, the comparison requires normalization. Excluding the $203 million SRE gain, PARR's core EV/EBITDA multiple rises to approximately 12-13x, aligning more closely with peers but still reasonable given its regional moats.

The balance sheet strength supports valuation. With $159 million in cash and $576 million of ABL availability, total liquidity of $735 million exceeds the company's $250-300 million minimum target, creating excess capital that can be deployed for growth or returns. Gross term debt of $642 million at 3x LTM Retail and Logistics EBITDA sits at the low end of the 3-4x target range, providing flexibility that more leveraged peers like Delek US (debt-to-equity of 8.22) lack. This financial health justifies the share repurchase program and suggests management could pursue opportunistic acquisitions, though they note any M&A would need to be "truly spectacular" to compete with buying back their own shares at current valuations.

Cash flow metrics reveal the underlying earnings power. Quarterly operating cash flow of $139.6 million and free cash flow of $107.4 million demonstrate strong conversion, with the $147 million working capital outflow in Q3 (due to RIN inventory buildup) expected to reverse as the company monetizes its excess RIN position. This temporary headwind masks the true cash generation capability, which management estimates will improve further as strong earnings convert to cash and the Hawaii SAF joint venture proceeds are recorded.

Peer comparisons highlight PARR's niche positioning. PBF Energy's larger scale and West Coast presence make it a direct competitor, but its negative margins reflect the challenges of competing in saturated markets without PARR's geographic insulation. HF Sinclair's lubricants and specialties business provides diversification that PARR lacks, but its lower margin capture in core refining shows the value of PARR's integrated model. CVR Energy's fertilizer operations create cyclicality that PARR avoids, while Delek's high leverage constrains its strategic options. PARR's unique combination of regional monopolies and integrated logistics creates a "Goldilocks" profile: small enough to be overlooked, but large enough to generate substantial free cash flow.

Conclusion: The Regional Moat Under Pressure

Par Pacific's investment thesis hinges on whether its regional moats can generate sustainable cash flows while management navigates the energy transition. Q3 2025 demonstrated the earnings power of this model, with record throughput, exceptional margin capture, and strong contributions from retail and logistics creating a diversified earnings stream. The aggressive share repurchase program, having reduced the float by 9% year-to-date, signals management's confidence in the durability of these cash flows.

The central risk is the SRE dependency that inflated Q3 results. While the underlying $170 million core EBITDA represents solid operational performance, the loss of future SRE benefits would fundamentally reset earnings expectations and test the valuation premium. Investors must monitor EPA decisions closely, as management's admission that the process is "highly politicized" provides little visibility.

The Hawaii SAF joint venture offers a path to participate in the energy transition without sacrificing control or bearing full capital risk, but execution risk remains high. Success would transform PARR from a regional refiner into a renewable fuels player with unique logistics advantages, while failure would represent a missed opportunity to deploy capital in a core competency.

Ultimately, PARR's story is one of strategic optimization within constraints. The company cannot match the scale of PBF or HF Sinclair, but it doesn't need to—its geographic isolation creates natural monopolies that defend margins. The key variables to watch are SRE approvals, SAF project execution, and management's ability to maintain operational excellence while returning capital to shareholders. If these align, the regional moat will continue generating premium valuations. If not, the scale disadvantage will become increasingly apparent in a consolidating industry.