Note 5 - Concentration of Risk

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

(5) Concentration of Risk

Bank Accounts

Financial instruments that potentially subject us to concentrations of risk consist primarily of cash, trade receivables and payables. We maintain cash balances at financial institutions in Houston, Texas. The FDIC insures certain financial products up to a maximum of $250,000 per depositor.  At March 31, 2024 and December 31, 2023, our cash balances (including restricted cash) exceeded the FDIC insurance limit per depositor by $11.4 million and $18.2 million, respectively. Instability and volatility in the capital, credit, and commodity markets, as well as with financial institutions, could adversely affect our cash balances (including restricted cash) in excess of FDIC insurance limits per depositor. In the event that banks in which we maintain our cash balances (including restricted cash) fail, there can be no assurance that the federal government and the Federal Reserve would intervene.

Key Supplier

Operation of the Nixon refinery depends on our ability to purchase adequate amounts of crude oil and condensate. On  December 29, 2023, we entered a new crude supply agreement with MVP, effective  January 1, 2024. This agreement provides a firm source of light-sweet Eagle Ford crude oil to the Nixon facility under improved credit terms, and management believes that MVP can provide us with adequate amounts of crude oil and condensate for the foreseeable future.  Related to the crude supply agreement, MVP stores crude oil at the Nixon facility under a terminal services agreement. At March 31, 2024, accounts payable for crude oil and condensate was $1.3 million.

During 2023, we operated under a crude supply agreement with Tartan.  Tartan also stored crude oil at the Nixon facility under a terminal services agreement.  In a letter dated October 31, 2023, Tartan provided LE and NPS the required 60 days’ notice of its intention to terminate the crude supply agreement and terminal services agreement. The effective date of the termination was December 31, 2023.  During Q1 2023, the vast majority of our crude was sourced from Tartan under the crude supply agreement.  At March 31, 2023, accounts payable for crude oil and condensate was $0.

Our financial health has been materially and adversely affected by significant current debt, certain of which is in default, historical net losses, working capital deficits, and margin volatility. If we are required to obtain our crude oil and condensate without the benefit of a long-term crude supply agreement, our exposure to the risks associated with volatile crude oil prices  may increase, crude oil transportation costs could increase, and our liquidity  may be reduced. Similarly, if producers experience crude supply constraints and increased transportation costs, our crude acquisition costs  may rise, or we  may not receive sufficient amounts to meet our needs, which could result in refinery downtime and could materially affect our business, financial condition, and results of operations.

Customers

Significant Customers. We routinely assess the financial strength of our customers.  To date, we have not experienced significant write-downs in accounts receivable balances.  We believe that our accounts receivable credit risk exposure is limited.

						Portion of
						Accounts
	Number		% Total			Receivable at
	Significant		Revenue from			March 31,
Three Months Ended	Customers		Operations			(in millions)
March 31, 2024		3		81.3	%	$	11.7
March 31, 2023		3		65.7	%	$	11.6

One of our significant customers is LEH, an Affiliate. The Affiliate purchases our jet fuel under the Amended and Restated Jet Fuel Sales Agreement and sells the jet fuel to the DLA under preferential pricing terms due to its HUBZone certification.  The jet fuel, which is stored at the Nixon Facility, is lifted by the Affiliate as needed.  For the three months ended March 31, 2024 and 2023, the Affiliate accounted for 30.7% and 30.3% of total revenue from operations, respectively.

Customer Concentration.  Our customer base consists of refined petroleum product wholesalers.  Economic changes similarly affect our customers positively or negatively, which impacts our overall exposure to credit risk. Economic changes include uncertainties related to commodity price volatility, recession and inflation, and armed conflicts in the Middle East and Europe and associated sanctions on Russian crude products.  Historically, we have had no significant problems collecting our accounts receivable.

Refined Product Sales

We sell our products primarily in the U.S. within PADD 3.  Occasionally we sell refined products to customers that export to other countries, such as naphtha and distillate to Mexico.  Total refined product sales by distillation (from light to heavy) for the periods indicated consisted of the following:

	Three Months Ended March 31,
	2024				2023
	(in thousands, except percent amounts)
LPG mix	$	61	0.1	%	$	55	0.0	%
Naphtha		18,113	20.1	%		20,729	20.7	%
Jet fuel		27,394	30.5	%		35,345	35.9	%
HOBM		20,535	22.8	%		33,488	18.3	%
AGO		23,812	26.5	%		25,023	25.1	%
	$	89,915	100.0	%	$	114,640	100.0	%

An Affiliate, LEH, purchases all our jet fuel.  See “Note (3)” to our consolidated financial statements for additional disclosures related to Affiliate agreements and arrangements.