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 December 31, 2023 and 2022, our cash balances (including restricted cash) exceeded the FDIC insurance limit per depositor by $18.2 million and $0.9 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. During 2022 and 2023, we operated under a crude supply agreement with Tartan. Related to the Tartan Crude Supply Agreement, Tartan 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 Tartan Crude Supply Agreement and terminal services agreement. The effective date of the termination was  December 31, 2023.  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.

Under the volume-based Tartan Crude Supply Agreement, Tartan was to deliver 24.8 million net bbls of crude oil. For the twelve months ended December 31, 2023 and 2022, volume delivered under the Tartan Crude Supply Agreement, as a percentage of the total net bbls of crude oil deliverable, was 71.0% and 54.8%, respectively. During the twelve months ended December 31, 2023, substantially all our crude was sourced from Tartan.  During the twelve months ended December 31, 2022, all our crude oil was sourced from Tartan. At December 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.

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.

One of our significant customers is LEH, an Affiliate. LEH purchases our jet fuel under an 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 Affiliate lifts the jet fuel stored at the Nixon Facility as needed.  For the twelve months ended December 31, 2023 and 2022, the Affiliate accounted for approximately 31.7% and 35.7% of total revenue from operations, respectively.  The Affiliate represented approximately $4.2 million and $0.0 in accounts receivable, related party at  December 31, 2023 and 2022, respectively.

Concentration of Customers

Our customer base consists of refined petroleum product wholesalers.  Economic changes affect our customers positively or negatively, impacting our overall credit risk exposure. Economic changes include uncertainties related to commodity price volatility, recession, inflation, 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 low-sulfur diesel to Mexico. Total refined product sales by distillation (from light to heavy) for the periods indicated consisted of the following:

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