Greetings, and welcome to the Par Petroleum Corporation Fourth Quarter Earnings Conference Call. At this time all participants in are listen-only mode. A brief question and answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Brice Tarzwell, Chief Legal Officer. Thank you, sir. You may begin.

Good morning, and welcome to Par Petroleum's earnings call for the 3 and 12 months ended December 31, 2014. With us today are Joseph Israel, President and Chief Executive Officer, Chris Micklas, Chief Financial Officer, Will Monteleone, Senior Vice President, Mergers & Acquisitions, and Christine Thorp, Director, Investor Relations. A copy of our earnings release was filed with the SEC yesterday, and we anticipate that our annual report on Form 10-K will be filed later today. This call is being recorded and will be available for 90 days. Before we begin, we'd like to remind everyone that comments made today by management may contain forward-looking statements. These forward-looking statements may discuss plans, expectations, estimates and projections that involve significant risks and uncertainties, which could cause actual results to differ materially from the results discussed in these forward-looking statements. Information about the risks we face and the uncertainties associated with Par Petroleum's forward-looking statements can be found in the company's annual and quarterly reports filed with the SEC. Because of these risks and uncertainties, investors should not place undue reliance on forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statement. We next turn to our President and Chief Executive Officer, Joseph Israel. Joseph?

Thank you, Brice, and good morning, everyone. This is my first call as a member of the Par family, and I'm very happy to be here. Will and the team should be very proud of their achievements and the company's position following the year of transition. We are all excited regarding our path forward and Par's future. After my opening remarks, Chris will review our numbers in more detail. Then we will open up the call for your questions. A strong $47 million adjusted EBITDA for the fourth quarter concluded a challenging, but successful year for Par. In 2014, we focused on building the company. After taking over the transition services from Tesoro, hiring people and repositioning ourselves in both the crude oil and the refined products markets, our operations have reached a steady state in the fourth quarter. For the quarter, improved Singapore and West Coast products markets gave us an $8.22 a barrel 4-1-2-1 crack spread on a Brent basis, $1.06 per barrel more favorable than the 2014 average and $2.57 a barrel more favorable than the fourth quarter of 2013. In addition, the falling crude price environment has significantly supported our retail pricing as well as our contractual distillate and fuel oil pricing due to the time lag effect. Our products export volume fell to less than 17% of our total sales in the fourth quarter compared to a 22% average for the year. This decrease is consistent with our focus to grow on-island sales. The oversupplied global crude market supported our Brent minus $2.79 a barrel Mid-Pacific blending mix during the quarter, which was $1.12 a barrel more favorable than the 2014 average and also $1.12 a barrel more favorable than the fourth quarter of 2013. In addition, our crude pricing in the fourth quarter benefited…

Thank you, Joseph. In the fourth quarter, net income was $32 million or $0.84 per share compared with a net loss of $51 million or a loss of $1.66 per share in the fourth quarter of 2013. Full year 2014 losses were $47 million compared with a loss of $79 million in 2013. Adjusted EBITDA for the year was a loss of $9 million compared with a loss of $31 million in 2013. Fourth quarter 2014 adjusted EBITDA was a positive $47 million, an improvement of $78 million compared to a loss of $31 million in the fourth quarter of 2013. Our press release provides a reconciliation of the adjusted EBITDA calculation, including the following fourth quarter 2014 impacts: a $2 million inventory adjustment as a result of falling crude prices, $3 million in acquisition and integration expenses stemming from our pending acquisition of Mid-Pac, a $3 million increase of the contingent consideration owed to Tesoro under the earn-out provision of the purchase agreement for our Hawaiian refining business, and $2 million in earnings generated from our equity interest in Piceance Energy. During the fourth quarter, we generated $25 million of cash and were able to repay $25 million of outstanding debt. At year-end, our cash balance totaled $89 million, net debt was $47 million, and total liquidity was $191 million. It is important to highlight that at year-end, our working capital debt included a partially financed cargo receivable of $27 million. Once this receivable was paid by our counterparty in early 2015, we paid off all our remaining revolving debt. Lastly, the anticipated closing of Mid-Pac on April 1 will be financed with a combination of new debt issued by Mid Pac at closing and cash on hand. Going forward, we expect to see a reduction in the overall acquisition and integration expenses as well as corporate overhead as we optimize our businesses and our operations. Now I will turn the call back to Joseph.

Thanks, Chris. In summary, as mentioned by the company in the past, 2014 was a transition year, and it has concluded on a strong note. Par is a growth-oriented, integrated refinery marketer with a $1.4 billion NOL or tax loss carryforward asset. As we continue to optimize operations, we will use our growth platform, focusing on integration and duplicating the business we already have.

[Operator instructions] Our first question comes from Adam Michael with Miller Tabak.

Good morning and thank you for taking my question. Let me start by saying congratulations on a fantastic quarter. It certainly looks like you guys reached an inflection point, and you certainly exceeded our expectations. My first question would be: When we're looking at the throughput increase in Q1, is that evenly - is that kind of like - should we assume that's a proportional split between the different products at the refinery yields? And are any of the - it sounded like, if I heard you correct, the Mid Pac volumes that you expect from that acquisition have not started to show up. And that was at July 1 when we should start to see those numbers. So if you could clarify that, I'd appreciate it.

Good morning and thank you for your interest. The 75,000 to 78,000 barrels per day throughput for the first quarter is actually our new line going forward. This is what we expect and where we expect to be going forward. Just to remind you, the Mid Pac acquisition supply, this actually started on January 1. So we added 4,000 barrels per day of gasoline sales with additional on-island sale growth that we had in other places. We are reaching an optimization point of those 75,000 barrels per day, and we should expect this optimization point to increase as we capture additional on-island sales.

Okay. That's helpful. And a second question regarding the company's leverage to lower oil. Can you provide some additional color on the current hedging strategy as far as operating costs go and how the company is looking at the low oil environment and how to lock in some of those lower operating costs?

Yes, I'd be happy to do so. So the first thing that came to mind and we had mentioned it in our prepared remarks and in our earnings release since we burn our fuel in the refinery, while most other refineries burn natural gas because it's available in their operations, the cost of crude is a significant driver in our energy cost. So when crude is going down from $100 to $50 a barrel, it is directly reducing our operations cost in the same ratio. So when we saw back in January the low price environment and we saw the potential of locking a 12-month strip, we went ahead and did it based on a 50% fuel burn volume, and we did it for the entire year, actually going through the first quarter of next year. So 50% is already locked and once we capture what the market gave us, there was a curve around $60 a barrel plus-minus a $5 barrel, just contango for the year and this will be basically our max crude price for fuel burn for the rest of the year. This is a significant improvement to where we were in the past. And in 2014, we actually mentioned the $15 million savings. Just with 2015 we'll end up in the same price average like 2014 was of course, as long as it stays lower like today, our cost savings should be much more significant than that and we see it continue in the first quarter.

Okay. That's very helpful. And then last question, if I could. It sounds like drilling costs have come down in the Piceance and the economics in the slides that were 8-K’d look pretty attractive, even at the current strip. Can you comment on just a general strategies on acquisition opportunities? Do you see them being more in the upstream or downstream side of things going forward?

Yes. I appreciate the question, Adam. Piceance is an equity play for us with a significant upside. Basically, creating value by increasing the reserve base is what we are after. It is a legacy asset that came to us after the Delta bankruptcy process. It gave us positive earnings since we switched to Laramie Energy as the operator. We like the operator and their track record and their experience and this new program will actually allow us to go to the next level with a much more efficient well profile, low-cost advantage, location advantage, and realize all these returns that we presented in the presentation. So we're happy to have it. It's a big upside for us. And I'll let Will talk more about it. Go ahead, Will.

I think as you pointed out, the slides that were 8-K’d regarding the reduction in drilling completion costs, as well as the improvements in EURs that we have seen, really provide a compelling return on capital that we're infusing to Piceance. And ultimately, this gives us comfort both with the other equity participants as well as the operator. And this emanated from the smaller program that we commenced during July of this year, and we saw that the cost come down significantly, and the recoveries increased as well. So I think we're pursuing this investment to maximize the overall net asset value of Piceance, and we believe this will generate attractive returns to our shareholders.

Our next question comes from Jon Segal with Highbridge Capital.

I guess I have a series of questions. The first is, we've seen a pronounced widening or benefit on California cracks in the recent periods. So just wondering if that's translating this month to the business. That'd be the first question. The second is -- I just want to make sure I'm clear. The fourth quarter earnings, which by the way, were absolutely tremendous, did not include the benefit of Mid Pac yet, correct? But the first quarter, even though the acquisition has not closed, will have those volumes to our benefit. I'll stop there, and I have 2 others.

Okay. I'll start with the West Coast volume. You’re exactly right. The West Coast is doing pretty good, especially starting mid-February. The refinery's outages created some positive pressure on product pricing, which we are benefiting from. There is about a 20% sensitivity for us to the West Coast. The 80% is coming from the West - from the Singapore market, which is also doing pretty good. So we told you the market conditions continue to be favorable in the first quarter, and we are around $11 a barrel on the index aspect between 4-1-2-1 and the crude differential, which is pretty close to the fourth quarter. So we're happy with that, and we'll continue to monitor this market. The gasoline inventories are extremely low, so there is still some place for upside in the West Coast. It's not over yet. On your other question, the fourth quarter didn't reflect any Mid Pac contribution yet. It started only on January the 1st on the supply side with additional 4,000 barrels per day, we're expecting the supply side to give us close to a $2 million, $2.5 million a quarter so you can expect this to play in the first quarter and as we close next to the next quarter, we should get the other benefits through the synergies, which are huge around the -- especially around transportation costs and then just the retail operations at Mid-Pac and its EBITDA contribution to the company.

And the $2 million to $2.5 million that you just quoted, Joseph, what is that? Is that EBITDA?

This is on EBITDA basis for the quarter. So look at about $10 million just coming from refinery’s…

The volumes?

On-island sales instead of export.

Okay. Very helpful. Then I guess, the other 2 questions I have is, can you talk about market share? Given the importance of selling volumes on-island, can you discuss market share gains that you continue to win? If you - I don't know if you've broken out this publicly or not, the sort of what the on-island – and I may have misunderstood it beginning of the call, on-island versus off-island sales are? And then finally, I guess I was pleasantly surprised to hear about the retail growth of 24%. So as retail becomes a bigger piece of the company's pie, do you intend to provide more transparency into those operations and their profitability?

Yes, you got it. I'll start from the second question. Marketing with 31 stores or locations hasn't been a segment for us. We looked at our business as one operation. Now with additional 84 outlets, we will start reporting and tracking our retail operations in much more detail and track their records and be transparent with the market. It's very important, and it's going to drive our earnings going forward, and it's going to give us the diversification we will need as a refiner. To your first question, the market share, we don't like to talk about market share from this angle. What I can tell you, this refinery, 5, 7, 8 years ago, used to run 80,000, 85,000 barrels per day. And this is how you want to run the refinery. This is where it gets the most efficient. You get best yields, the best daily operation expense performance, and this is where we want to get. So Mid Pac is only the beginning. So we are up from 68, 69 to the 75 on continuous basis, and we have a lot to chase. The island is still short of jet fuel, so there is room there. The big boxes are out there as we reported on our radar screen and some couple of other opportunities. The higher we go, the more efficient and competitive we will be.

[Operator Instructions] Our next question comes from Andrew Shapiro with Lawndale Capital Management.

Somewhat of a follow-up with this last gentleman on market share. Have you seen any increase in business come your way given the uncertainties of surrounding the other refinery, the Chevron refinery on the island? And what effects do you see going forward from their decision to sell the Kapolei refinery?

It's hard to comment at this point. Chevron continues to operate the refinery as far as we know, and life continues. So we don't see any significant change or any change I can even report this morning.

Do you see it to be an opportunity in the event that it's taken over by a financial buyer?

An opportunity in what way?

Well, if it's taken over by a financial buyer it might be run with a little bit more of a focus on economics and profitability versus the losses that Chevron may have been absorbing in there, and thus, you would have a more rational competitor.

I don't know about that. Chevron is an extremely rational competitor. Chevron is a very, very good company. Chevron has a lot of synergies on both sides on the crude and the product side. They could bring all kind of Vietnamese and Asian crude and run the refinery in many ways that others won't have any access to. And then when it comes to the intermediates, they can play between their other refineries and get the synergies on a higher-level basis. I don't know if we will have any more efficient operator in the island than Chevron, to be honest with you.

No, exactly. That's the point I'm making is that if a financial buyer were to come in here, they would have to, in order to maintain profitability, probably tighten or loosen up the market for us to have some expanded profitability and I was wondering if you saw that. You somewhat have concurred by discussing all the synergies Chevron has to make them a tougher competitor for you.

Yes. So again, we haven't seen anything yet, right? Chevron continues to operate. Life is normal. But I take your point, this is a potential scenario, and time will tell.

Okay. The Hawaiian governor launched a task force that did a few reports and the final task force report that came out regarding the refinery industry there talks and discusses the move towards renewable energy, especially on the electricity production avenue inside of the state, and other movements towards sustainable energy, describes potentially the long-term decline in demand on-island that would potentially result in support for only one refinery. Do you - are you aware of that report? And do you concur about that issue? And I guess, what are you doing to position ourselves and what are the survivor of the 2 refineries when the market shrinks?

Yes, let's separate green and LNG because they are not the same, right? I'll start with the LNG. I think you are referring a little bit on the LNG in your remarks. LNG has been a hot topic in Hawaii for many, many years, and there is a reason it hasn't developed to any real project. It's just so hard to justify such a huge investment, hundreds of millions of dollars, to put in infrastructure in such a small market, which is so far for any LNG resource you can even think about. We as the refiner, we cannot just live by this assumption, what we need to focus on continued to be - continue to focus on our efficiency and be competitive and be a part of the long-term energy solution for the state, whatever it is. And regarding green, you know greens are everywhere, and we can blend with that, and we like the green operation as well, and we work in that direction in any way possible. But the market will end up with the right economics around the energy solution for the market and I believe the refinery will continue to be a part of it, like it is a part of any other market in the world. So we have no concerns about it. We just need to focus on our efficiency and look forward.

Our next question comes from Eric Ward with Becker Drapkin Management.

Historically, you talked about achieving $2 to $4 per barrel of EBITDA as the longer range target. Is that something that you still feel reasonable?

Yes. So you are talking about the $2 to $4 a barrel on a net margin level, which is an EBITDA level, which is a good indication for where we think our profitability is in mid-cycle environment. Now define mid-cycle, 3, 5 years average. This is post the Mid Pac so multiplied by the barrels, you are talking about $75 million EBITDA for a year. I would just add that for me, some of the operations improvement that we have going will be in addition to that. So whether it's going to be a $0.50 or $1 or $1.50, time will tell. But this is where we're going to work very hard in the next 6 to 12 months. And these are the low-hanging fruits that I referred to in my prepared remarks. And there is a reason they are considered low-hanging fruits. Look at this refinery in the last 2 years. It went through a sale process, and then it went through a long shutdown and a long start-up. And the focus for most of the year hasn't been really operations excellence; there were other things on the priority list, catching up with people, catching up with positions. But here is a refinery that in the last 2 years they stayed a little bit behind, this is pretty clear that we have some opportunities. So I would add this one dollar a barrel, call it, for now, over your $2 to $4. And this is probably where our mid-cycle profitability is. And then just to - since we are introducing here the benchmark, the indexes to the market, let's define a mid-cycle. If you look at 4-1-2-1 in the past, say, 3 years, that was $8 a barrel, and we described how we calculate it in our 8-K. And there is another $0.17 a barrel, discount to Brent on the crude differential side. So I don't want to be too analytic, but qualitatively, $8.17 is probably a good mid-cycle. So we are talking about $11 fourth quarter, $11 first quarter, I hope this gives you a little bit flavor about what we consider favorable market conditions now.

Our next question comes from Edward Collery with Arbiter Partners.

I was hoping you guys could try to quantify the impacts you saw in the quarter from the lag or contractual pricing of refined products?

Yes, great, great question. And this is not unique to Par Petroleum. Other refineries have talked about the benefit of the falling crude price in the quarter because you don't get the $37 a barrel crash on crude every quarter so it has been a significant impact across the board for refiners. And I want to clarify a little bit this benefit for us because we want to be transparent with the market and we want you guys to be able to predict our results and being able to model us in the future. I will tell you that in the fourth quarter, the positive impact on earnings, from the falling crude price, has been somewhere between $15 million to $20 million on the EBITDA level, and it came from the retail. And you saw retail benefiting across the board in the fourth quarter because the natural lag in the pricing between the street and the rack level. But the other component, which was even more significant, was the wholesale level. When we sell jet fuel to military and airlines, when we sell fuel oil and distillate to utilities, there is a 1-week to 1-month contractual lag between when you price it to when they take it so of course when there is such a lag in a falling price environment, this will translate to a gain, right, for the refinery. I'd like to say that we changed our sales mix at the end of the year, and we are now 1/3 less exposed to this time lag effect just driven by selling less fuel oil to the utilities and our exposure on the way up is going to be lower. Did I answer your question?

Yes, that's great.

At this time, I would like to turn the call back over to management for closing comments.

Okay. Thank you, LaTonya. In closing, I'd like to thank our employees for their dedication and hard work in 2014. Thank you for your interest in Par and your participation today. Thank you all.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a great day. 2