Leases

12 Months Ended

Dec. 31, 2022

Leases [Abstract]

Leases

Leases

We have cancellable and non-cancellable finance and operating lease liabilities for the lease of land, vehicles, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products. Most of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 30 years or more. There are no material residual value guarantees associated with any of our leases.

The following table provides information on the amounts (in thousands, except lease term and discount rates) of our ROU assets and liabilities as of December 31, 2022 and 2021 and their placement within our consolidated balance sheets:

Lease type	Balance Sheet Location	December 31, 2022			December 31, 2021
Assets
Finance	Property, plant, and equipment	$	21,150		$	20,556
Finance	Accumulated amortization	(10,308)			(8,397)
Finance	Property, plant, and equipment, net	$	10,842		$	12,159
Operating	Operating lease right-of-use assets	350,761			383,824
Total right-of-use assets		$	361,603		$	395,983
Liabilities
Current
Finance	Other accrued liabilities	$	1,782		$	1,540
Operating	Operating lease liabilities	66,081			53,640
Long-term
Finance	Finance lease liabilities	6,311			7,691
Operating	Operating lease liabilities	292,701			335,094
Total lease liabilities		$	366,875		$	397,965
Weighted-average remaining lease term (in years)
Finance		5.60			6.29
Operating		9.00			11.28
Weighted-average discount rate
Finance		7.38		%	7.46		%
Operating		7.10		%	6.70		%

The following table summarizes the lease costs recognized in our consolidated statements of operations (in thousands):

	Year Ended December 31,
Lease cost type	2022		2021		2020
Finance lease cost
Amortization of finance lease ROU assets	$	1,917	$	1,913	$	2,007
Interest on lease liabilities	619		655		654
Operating lease cost	89,591		91,882		106,256
Variable lease cost	5,478		6,716		9,802
Short-term lease cost	8,575		1,013		1,926
Net lease cost	$	106,180	$	102,179	$	120,645
Operating lease income (1)	$	(11,030)	$	(3,149)	$	(3,201)

_________________________________________________________

(1)At December 31, 2022 and 2021, Property, plant, and equipment, net associated with leased assets was approximately $9.2 million and $10.8 million, respectively. The majority of our lessor income comes from leases with lease terms of one year or less and the estimated future undiscounted cash flows from lessor income are not expected to be material.

The following table summarizes the supplemental cash flow information related to leases as follows (in thousands):

	Year Ended December 31,
Lease type	2022		2021		2020
Cash paid for amounts included in the measurement of liabilities
Financing cash flows from finance leases	$	1,620	$	1,914	$	1,932
Operating cash flows from finance leases	614		658		656
Operating cash flows from operating leases	85,681		89,677		103,270
Non-cash supplemental amounts
ROU assets obtained in exchange for new finance lease liabilities	594		1,936		3,476
ROU assets obtained in exchange for new operating lease liabilities	64,567		97,011		22,529
ROU assets terminated in exchange for release from finance lease liabilities	—		—		—
ROU assets terminated in exchange for release from operating lease liabilities	32,902		6,847		7,738

The table below includes the estimated future undiscounted cash flows for finance and operating leases as of December 31, 2022 (in thousands):

For the year ending December 31,	Finance leases		Operating leases		Total
2023	$	2,286	$	88,546	$	90,832
2024	1,955		75,129		77,084
2025	1,794		50,823		52,617
2026	1,327		45,777		47,104
2027	1,098		43,575		44,673
Thereafter	1,582		160,849		162,431
Total lease payments	10,042		464,699		474,741
Less amount representing interest	(1,949)		(105,917)		(107,866)
Present value of lease liabilities	$	8,093	$	358,782	$	366,875

Additionally, we have $11.6 million and $3.8 million in future undiscounted cash flows for operating leases and finance leases that have not yet commenced, respectively. These leases are expected to commence when the lessor has made the equipment or location available to us to operate or begin construction, respectively.

Sale-Leaseback Transaction

On February 11, 2021, PHL and Par Hawaii Property Company, LLC (collectively, the “Sellers”), both our wholly owned subsidiaries, entered into a Purchase Agreement and Escrow Instructions with MDC Coast HI 1, LLC, a subsidiary of Realty Income Corporation (the “Buyer”), and Fidelity National Title Insurance Company, pursuant to which the Sellers and Buyer agreed to consummate a sale-leaseback transaction (the “Sale-Leaseback Transactions”). Under the terms of the Purchase Agreement, the Sellers agreed to sell to the Buyer a total of twenty-two (22) retail convenience store/fuel station properties located in Hawaii (the “Sale-Leaseback Properties”) for an aggregate cash purchase price of $112.8 million, net of transaction fees.

On February 23, 2021, the Sellers and Buyer closed the Sale-Leaseback Transactions with respect to twenty-one (21) Sale-Leaseback Properties for an aggregate cash purchase price of approximately $107.0 million, net of transaction fees. On March 12, 2021, the Sellers and Buyer closed the sale of one additional property for an aggregate cash purchase price of approximately $5.8 million, net of transaction fees. We recognized a gain of $63.9 million as a result of these transactions, which is included in Loss (gain) on sale of assets, net on our consolidated statements of operations for the year ended December 31, 2021.

Upon the closings of the sales of the Sale-Leaseback Properties, PHL entered into a Master Land and Building Lease Agreement (the “Lease Agreement”) with the Buyer, pursuant to which, among other things, PHL leased the Sale-Leaseback Properties from the Buyer, on a commercial triple-net basis, for 15 years unless earlier terminated. The initial lease term may be extended for up to four five-year renewal terms in accordance with the terms of the Lease Agreement. Under the terms of the Lease Agreement, PHL is responsible for monthly rent and all expenses related to the leased facilities, including, but not limited to, insurance premiums, taxes, and other expenses, such as utilities. As a result of the Sale-Leaseback Transactions, we recorded operating ROU assets and lease liabilities of $81.3 million. Certain of the Sale-Leaseback Properties were treated as failed sale-leaseback transactions based on the terms of the lease. As such, we retained the book value of the assets and recognized a finance liability of $12.4 million included in Other accrued liabilities and Other liabilities on our consolidated balance sheet.

In connection with PHL’s entry into the Lease Agreement, Par Petroleum, LLC, our wholly owned subsidiary, entered into a guaranty agreement in favor of the Buyer, pursuant to which, among other things, Par Petroleum, LLC guaranteed the payment when due of the monthly rent, and all other additional rent, interest, and charges payable by PHL to the Buyer under the Lease Agreement, and the performance by PHL of all the material terms, conditions, covenants, and agreements of the Lease Agreement.

Leases

Leases

We have cancellable and non-cancellable finance and operating lease liabilities for the lease of land, vehicles, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products. Most of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 30 years or more. There are no material residual value guarantees associated with any of our leases.

The following table provides information on the amounts (in thousands, except lease term and discount rates) of our ROU assets and liabilities as of December 31, 2022 and 2021 and their placement within our consolidated balance sheets:

Lease type	Balance Sheet Location	December 31, 2022			December 31, 2021
Assets
Finance	Property, plant, and equipment	$	21,150		$	20,556
Finance	Accumulated amortization	(10,308)			(8,397)
Finance	Property, plant, and equipment, net	$	10,842		$	12,159
Operating	Operating lease right-of-use assets	350,761			383,824
Total right-of-use assets		$	361,603		$	395,983
Liabilities
Current
Finance	Other accrued liabilities	$	1,782		$	1,540
Operating	Operating lease liabilities	66,081			53,640
Long-term
Finance	Finance lease liabilities	6,311			7,691
Operating	Operating lease liabilities	292,701			335,094
Total lease liabilities		$	366,875		$	397,965
Weighted-average remaining lease term (in years)
Finance		5.60			6.29
Operating		9.00			11.28
Weighted-average discount rate
Finance		7.38		%	7.46		%
Operating		7.10		%	6.70		%

The following table summarizes the lease costs recognized in our consolidated statements of operations (in thousands):

	Year Ended December 31,
Lease cost type	2022		2021		2020
Finance lease cost
Amortization of finance lease ROU assets	$	1,917	$	1,913	$	2,007
Interest on lease liabilities	619		655		654
Operating lease cost	89,591		91,882		106,256
Variable lease cost	5,478		6,716		9,802
Short-term lease cost	8,575		1,013		1,926
Net lease cost	$	106,180	$	102,179	$	120,645
Operating lease income (1)	$	(11,030)	$	(3,149)	$	(3,201)

_________________________________________________________

(1)At December 31, 2022 and 2021, Property, plant, and equipment, net associated with leased assets was approximately $9.2 million and $10.8 million, respectively. The majority of our lessor income comes from leases with lease terms of one year or less and the estimated future undiscounted cash flows from lessor income are not expected to be material.

The following table summarizes the supplemental cash flow information related to leases as follows (in thousands):

	Year Ended December 31,
Lease type	2022		2021		2020
Cash paid for amounts included in the measurement of liabilities
Financing cash flows from finance leases	$	1,620	$	1,914	$	1,932
Operating cash flows from finance leases	614		658		656
Operating cash flows from operating leases	85,681		89,677		103,270
Non-cash supplemental amounts
ROU assets obtained in exchange for new finance lease liabilities	594		1,936		3,476
ROU assets obtained in exchange for new operating lease liabilities	64,567		97,011		22,529
ROU assets terminated in exchange for release from finance lease liabilities	—		—		—
ROU assets terminated in exchange for release from operating lease liabilities	32,902		6,847		7,738

The table below includes the estimated future undiscounted cash flows for finance and operating leases as of December 31, 2022 (in thousands):

For the year ending December 31,	Finance leases		Operating leases		Total
2023	$	2,286	$	88,546	$	90,832
2024	1,955		75,129		77,084
2025	1,794		50,823		52,617
2026	1,327		45,777		47,104
2027	1,098		43,575		44,673
Thereafter	1,582		160,849		162,431
Total lease payments	10,042		464,699		474,741
Less amount representing interest	(1,949)		(105,917)		(107,866)
Present value of lease liabilities	$	8,093	$	358,782	$	366,875

Additionally, we have $11.6 million and $3.8 million in future undiscounted cash flows for operating leases and finance leases that have not yet commenced, respectively. These leases are expected to commence when the lessor has made the equipment or location available to us to operate or begin construction, respectively.

Sale-Leaseback Transaction

On February 11, 2021, PHL and Par Hawaii Property Company, LLC (collectively, the “Sellers”), both our wholly owned subsidiaries, entered into a Purchase Agreement and Escrow Instructions with MDC Coast HI 1, LLC, a subsidiary of Realty Income Corporation (the “Buyer”), and Fidelity National Title Insurance Company, pursuant to which the Sellers and Buyer agreed to consummate a sale-leaseback transaction (the “Sale-Leaseback Transactions”). Under the terms of the Purchase Agreement, the Sellers agreed to sell to the Buyer a total of twenty-two (22) retail convenience store/fuel station properties located in Hawaii (the “Sale-Leaseback Properties”) for an aggregate cash purchase price of $112.8 million, net of transaction fees.

On February 23, 2021, the Sellers and Buyer closed the Sale-Leaseback Transactions with respect to twenty-one (21) Sale-Leaseback Properties for an aggregate cash purchase price of approximately $107.0 million, net of transaction fees. On March 12, 2021, the Sellers and Buyer closed the sale of one additional property for an aggregate cash purchase price of approximately $5.8 million, net of transaction fees. We recognized a gain of $63.9 million as a result of these transactions, which is included in Loss (gain) on sale of assets, net on our consolidated statements of operations for the year ended December 31, 2021.

Upon the closings of the sales of the Sale-Leaseback Properties, PHL entered into a Master Land and Building Lease Agreement (the “Lease Agreement”) with the Buyer, pursuant to which, among other things, PHL leased the Sale-Leaseback Properties from the Buyer, on a commercial triple-net basis, for 15 years unless earlier terminated. The initial lease term may be extended for up to four five-year renewal terms in accordance with the terms of the Lease Agreement. Under the terms of the Lease Agreement, PHL is responsible for monthly rent and all expenses related to the leased facilities, including, but not limited to, insurance premiums, taxes, and other expenses, such as utilities. As a result of the Sale-Leaseback Transactions, we recorded operating ROU assets and lease liabilities of $81.3 million. Certain of the Sale-Leaseback Properties were treated as failed sale-leaseback transactions based on the terms of the lease. As such, we retained the book value of the assets and recognized a finance liability of $12.4 million included in Other accrued liabilities and Other liabilities on our consolidated balance sheet.

In connection with PHL’s entry into the Lease Agreement, Par Petroleum, LLC, our wholly owned subsidiary, entered into a guaranty agreement in favor of the Buyer, pursuant to which, among other things, Par Petroleum, LLC guaranteed the payment when due of the monthly rent, and all other additional rent, interest, and charges payable by PHL to the Buyer under the Lease Agreement, and the performance by PHL of all the material terms, conditions, covenants, and agreements of the Lease Agreement.