I am long shares of Par Petroleum (PARR), a Sam Zell controlled post-reorg NOL vehicle ($1.3B unrestricted net operating loss carryforward) trading at less than 3x ev/ ’15 ebitda, ascribing no value to the nol, equity stake in Piceance Energy and 6% Arguello Point Unit working interest. 

If I was to propose one chapter for Joel Greenblatt to add to his book, “You Can Be a Stock Market Genius,” the bible on special situations investing, it would be NOL vehicles. While there are a number of interesting situations currently (WMIH, BIOF, CPMK, etc), I think PARR is by far the most interesting. Sam Zell is no stranger to NOL vehicles, having made early investors in Danielson Holding Co, now known as Covanta (CVA) a great deal of money (10x return over first few years post bankruptcy) by acquiring cash flowing assets at distressed prices via rights offerings (to protect the nols) and debt. I view Par Petroleum (PARR) as a similar story.  So while I do appreciate the fact the company will not be paying taxes for some time to come, what is more important in my opinion is that we are coat-tailing Sam Zell, an “outsiders-esque” value creator. 

Since emergence from bankruptcy Sam and team have acquired a crude logistics/distribution business for 2x ev/ebitda, a refinery for <1x ev/normalized ebitda and are currently in the process of finalizing the purchase of Mid Pac Petroleum, a Hawaii-based petroleum marketer and distributor for <4x ev/ebitda including synergies. In addition, as legacy assets remaining from predecessor Delta Petroleum’s bankruptcy, we also own a 6% gross working interest in Arguello Point Unit (offshore Santa Barbara oil field, onshore facility and pipeline assets), and a non-operating interest in Piceance Energy LLC, an upstream natural gas E&P focused in Colorado under leadership of Bob Boswell, previous value creator in private equity venture Laramie I (generated 3.4x ROI for investors in 3 years developing assets in the same basin) who has invested alongside fellow mgmt and sponsors in Laramie II, 66% owner of Piceance Energy LLC. 

In my opinion, we are being provided this opportunity due to the lack of visibility around the historical/forward earnings power of the legacy and acquired assets, lack of formal earnings guidance from the company, out-of-favor status of refiners currently, recent concern over current Mid-Pac deal approval and related rights offering (Zell’s Equity Group Investments and Whitebox are subscribing fully), and post-reorg orphan status/lack of sell-side coverage of the company currently- all of which I believe will change in due course.

Upcoming catalysts include closing of the Mid-­-Pac acquisition, results from Piceance Energy drilling program, improved earnings power/visibility (this will take time given contractual nature of Hawaii's finished product market), sell-side initiations, additional acquisitions and eventually adding back nols to book. I believe additional acquisitions could include one or more of the following: additional Hawaii gas stations, Hawaii Gas, AES Hawaii, KPLP, Covanta Hawaii, and Chevron Hawaii (a New Zealand Refining type co-­-op structure).