Par Petroleum Reports First Quarter 2014 Results, Restatement of 2013 Results and Acquisition of Mid Pac Petroleum

News Release from Parr Petroleum HOUSTON

Par Petroleum Corporation (OTCQB: PARR) today reported a first quarter 2014 net loss of $14.6 million and negative Adjusted EBITDA of $8.9 million. The company also reported restated 2013 full year net loss of $79.2 million and restated negative Adjusted EBITDA $24.7 million. See the reconciliation of GAAP and non-GAAP financial measures included as Attachment 2.

“While this has been a challenging transition for us, I am pleased to report that during May we completed the integration of Hawaii Independent Energy’s information and accounting systems and are now managing these systems internally,” said William Monteleone, Chairman and Chief Executive Officer. “Separate from the accounting integration, we have made great progress in improving operating results and repositioning the Company for future growth. These improvements were achieved notwithstanding the continued negative impact of higher-cost crude procured during the Syrian crisis and carryover inventory from the predecessor owner running through our system,” continued Mr. Monteleone. “By the end of the first quarter, we had worked through the high-cost crude inventory. We are actively improving crude sourcing options and have shifted the majority of our slate towards Alaskan, Canadian and South American crude grades, are re-establishing market share on the island, and opening up new relationships with Mexican crude suppliers.”

(Buying cheaper oil.  What a concept!)

The company also announced that it will acquire Mid Pac Petroleum for total consideration of approximately $107 million, subject to adjustment as set forth in the merger agreement. “Acquiring Mid Pac provides a unique expansion opportunity for our Hawaii business. Adding Mid Pac’s retail sites will provide synergies by increasing on-island sales of our refined products, optimizing distribution costs and enhancing crude slate flexibility. In addition, Mid Pac’s fee-owned real estate portfolio, consisting of 22 retail locations, terminals and office space, provides excellent underlying asset value,” said Mr. Monteleone.

In addition, the company announced it will contribute approximately $3.3 million of capital to Piceance Energy, LLC to fund its portion of the 2014 Piceance Energy drilling program. “We expect the one-rig program will begin to unlock a small portion of Piceance Energy’s undeveloped reserves and allow it to grow its production over the coming quarters,” added Mr. Monteleone.

The company will hold a conference call with investors on Tuesday, June 3, 2014 at 10:00 AM CT. See dial-in information below.

Acquisition of Mid Pac Petroleum

The company has reached an agreement to acquire Koko’oha Investments, Inc., the parent company of Mid Pac Petroleum, LLC, which is the exclusive licensee of the ‘76’ brand in the State of Hawaii. Mid Pac operates or distributes through over 80 retail sites and four terminals across Hawaii.

Under the terms of the merger agreement, the consideration will consist of $107 million, subject to adjustments. The agreement calls for closing the transaction within 120 days of signing subject to HSR clearance and customary closing conditions.

The company expanded an existing credit facility in order to fund the $10 million deposit due upon signing the merger agreement. In addition, the interest rate on the credit facility has been reduced. To provide certainty of acquisition funding, the company has received binding commitments from lenders, subject to final documentation, to further expand the facility to a $50 million aggregate Term Loan and add a $75 million Bridge Loan. The company intends to launch a rights offering to existing shareholders prior to closing the acquisition, the net proceeds of which are expected to be used to retire a portion of the acquisition debt. The company expects its largest shareholder will commit to its proportionate share of the offering.

First Quarter 2014 and Restated 2013 Fiscal Year Results of Operations

The company reported a consolidated net loss of $14.6 million and negative Adjusted EBITDA of $8.9 million for the first quarter 2014. There were several non-cash items or acquisition and integration costs included in the first quarter results.

The significant adjustments in Adjusted EBITDA relate to the following:

• $2.9 million of acquisition and integration costs;
• $1.6 million in gains related to a change in the fair value of our common stock warrants; and
• $2.5 million in gains related to a change in the value of contingent consideration related to the HIE acquisition.

The company has finalized the restatement of its 2013 financial statements which resulted in an $8.6 million increase in cost of revenues. The restatement increased the company’s net loss for the year ended December 31, 2013 to $79.2 million. Restated negative Adjusted EBITDA for the year ended December 31, 2013 is $24.7 million. The amended Form 10-K for the year ended December 31, 2013 has been filed with the SEC. See the summary of the impact of the restatement included in Attachment 1.

See the reconciliation of GAAP and non-GAAP financial measures included in Attachment 2.

Refining, Distribution & Marketing

During the first quarter, the refining, distribution and marketing segment had revenue of $722 million, gross margin of $27.0 million, and an operating loss of $11.8 million, which includes operating expenses of $33.1 million and depreciation, depletion and amortization (DD&A) expense of $2.3 million. The refinery operated at an average throughput of 67,000 barrels per day or 71% utilization for the first quarter 2014. Manufacturing costs before DD&A expense (see table below) for the first quarter averaged $4.53/bbl of throughput. Gross refining margin per barrel totaled $3.17/bbl during the same period.

2014

Throughput (thousand bbls per day)

• Heavy Crude (a) 20
• Light Crude 47
• Total Throughput 67

Yield (thousand bbls per day)

• Gasoline and gasoline blendstocks 16
• Jet fuel 17
• Diesel fuel 8
• Heavy fuel oils, residual products, internally produced fuel and other 27
• Total Yield 68

Gross margin (in millions) $19.1

Gross refining margin ($/throughput bbl) (b) $3.17

Production costs before DD&A expense ($/throughput bbl) (c) $4.53

(a) We define heavy crude oil as crude oil with an American Petroleum Institute gravity of 24 degrees or less.

(b) Management uses gross refining margin per barrel to evaluate performance and compare profitability to other companies in the industry. There are a variety of ways to calculate gross refining margin per barrel; different companies within the industry may calculate it in different ways. We calculate gross refining margin per barrel by dividing gross refining margin (revenues less feedstocks, purchased refined products, refinery fuel burn, and transportation and distribution costs) by total refining throughput.

(c) Management uses production costs before DD&A expense per barrel to evaluate performance and compare efficiency to other companies in the industry. There are a variety of ways to calculate production cost before DD&A expense per barrel; different companies within the industry calculate it in different ways. We calculate production costs before DD&A expense per barrel by dividing all direct production costs by total refining throughput.

Commodity Marketing and Logistics

During the first quarter, Texadian generated gross margin of $1.6 million vs. $9.9 million for the first quarter 2013, a decrease of approximately $8.3 million. During the first quarter 2014, segment operating income was $0.2 million which included approximately $0.5 million of DD&A expense vs. $6.2 million of operating income for the first quarter 2013 which included $0.5 million of DD&A expense. Texadian profitability was lower because the first quarter 2013 reflected operating conditions on the Mississippi River in which the company was uniquely positioned to capture arbitrage opportunities.

Natural Gas and Oil

Par’s investment in Piceance Energy LLC is accounted for using the equity method of accounting. During the first quarter, Piceance generated revenue of $20.2 million vs. $14.0 million for the first quarter 2013, an increase of $6.2 million. During the quarter, Piceance generated operating income of approximately $3.6 million which included $6.7 million of DD&A expense vs. an operating loss of $3.5 million for the first quarter 2013 which included $6.4 million of DD&A expense. The change in operating income was driven by higher natural gas and natural gas liquids pricing. Production for the first quarter 2014 was 3.6 Bcfe compared to 3.8 Bcfe for the first quarter 2013.

Piceance’s board of managers recently approved a one-rig drilling program commencing in third quarter 2014.

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