Derivative Financial Instruments | 9 Months Ended |
Sep. 30, 2013 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Derivative Financial Instruments | ' |
Derivative Financial Instruments |
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Interest Rate Derivatives |
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We periodically enter into interest rate derivatives to economically hedge debt, interest or expected debt issuances, and we have historically designated these derivatives as cash flow or fair value hedges for accounting purposes. Adjustments resulting from discontinued hedges continue to be recognized in accordance with their historic hedging relationships. |
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In September 2013, we entered into $150.0 million of Treasury lock contracts to hedge against the risk of variability of future interest payments on a portion of the debt we expected to issue in early October 2013. The fair value of these contracts at September 30, 2013 was a liability of less than $0.1 million. These contracts were settled on October 3, 2013 for a loss of $0.2 million (see Note 14 – Subsequent Events, for more information about this settlement). We have accounted for these contracts as cash flow hedges. |
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During 2012, we terminated and settled certain interest rate swap agreements and realized a gain of $11.0 million, which was recorded to other comprehensive income. The purpose of these swaps was to hedge against the variability of future interest payments on the refinancing of our debt that matures in 2014. If management were to determine that it was probable this forecasted transaction would not occur in 2014, the $11.0 million gain we have recorded to other comprehensive income would be reclassified into earnings. |
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Commodity Derivatives |
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Our butane blending activities produce gasoline products, and we can reasonably estimate the timing and quantities of sales of these products. We use a combination of forward purchase and sale contracts, NYMEX contracts and butane futures agreements to help manage price changes, which has the effect of locking in most of the product margin realized from our butane blending activities that we choose to hedge. |
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We account for the forward physical purchase and sale contracts we use in our butane blending and fractionation activities as normal purchases and sales. Forward contracts that qualify for and are elected as normal purchases and sales are accounted for using traditional accrual accounting. As of September 30, 2013, we had commitments under these forward purchase and sale contracts as follows (in millions): |
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| Market Value | | Barrels | | | | | | | | | | | | | | | |
Forward purchase contracts | $ | 158.8 | | | 2.6 | | | | | | | | | | | | | | | |
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Forward sale contracts | $ | 44.4 | | | 0.4 | | | | | | | | | | | | | | | |
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We use NYMEX contracts to hedge against changes in the price of petroleum products we expect to sell in future periods. Our NYMEX contracts fall into one of three hedge categories: |
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Hedge Category | | Hedge Purpose | | Accounting Treatment | | | | | | | | | | | | | | | | |
Qualifies For Hedge Accounting Treatment | | | | | | | | | | | | | | | | |
Cash Flow Hedge | | To hedge the variability in cash flows related to a forecasted transaction. | | The effective portion of changes in the value of the hedge are recorded to accumulated other comprehensive income/loss and reclassified to earnings when the forecasted transaction occurs. Any ineffectiveness is recognized currently in earnings. | | | | | | | | | | | | | | | | |
Fair Value Hedge | | To hedge against changes in the fair value of a recognized asset or liability. | | The effective portion of changes in the value of the hedge are recorded as adjustments to the asset or liability being hedged. Any ineffectiveness is recognized currently in earnings. | | | | | | | | | | | | | | | | |
Does Not Qualify For Hedge Accounting Treatment | | | | | | | | | | | | | | | | |
Economic Hedge | | To effectively serve as either a fair value or a cash flow hedge; however, the derivative agreement does not qualify for hedge accounting treatment or is ASC 815, Derivatives and Hedging. | | Changes in the value of these agreements are recognized currently in earnings. | | | | | | | | | | | | | | | | |
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We also use exchange-traded butane futures agreements, which are not designated as hedges for accounting purposes, to hedge against changes in the price of butane we expect to purchase in the future. Changes in the fair value of these agreements are recognized currently in earnings as adjustments to product purchases. |
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Additionally, we currently hold petroleum product inventories that we obtained from overages on our pipeline systems. We use NYMEX contracts, which are not designated as hedges for accounting purposes, to help manage price changes related to these overage inventory barrels. Changes in the fair value of these agreements are recognized currently in earnings as adjustments to operating expense. |
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As outlined in the table below, our open NYMEX contracts and butane futures agreements at September 30, 2013 were as follows: |
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Type of Contract/Accounting Methodology | | Product Represented by the Contract and Associated Barrels | | Maturity Dates | | | | | | | | | | | | | | | | |
NYMEX - Fair Value Hedges | | 0.7 million barrels of crude oil | | Between October 2013 and November 2016 | | | | | | | | | | | | | | | | |
NYMEX - Economic Hedges | | 3.2 million barrels of refined products and crude oil | | Between October 2013 and April 2014 | | | | | | | | | | | | | | | | |
Butane Futures Agreements - Economic Hedges | | 0.4 million barrels of butane | | Between October 2013 and April 2014 | | | | | | | | | | | | | | | | |
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At September 30, 2013, we had made margin deposits of $10.3 million related to our NYMEX contracts, which were recorded as a current asset under energy commodity derivatives deposits on our consolidated balance sheet. We have the right to offset the combined fair values of our open NYMEX contracts and our open butane futures agreements against our margin deposits under a master netting arrangement; however, we have elected to disclose the combined fair values of our open NYMEX and butane futures agreements separately from the related margin deposits on our consolidated balance sheets. Additionally, we have the right to offset the fair values of our NYMEX agreements and butane futures agreements together for each counterparty, which we have elected to do, and we report the combined net balances on our consolidated balance sheets. A schedule of the derivative amounts we have offset and the deposit amounts we could offset under a master netting arrangement are provided below as of December 31, 2012 and September 30, 2013 (in thousands): |
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Description | | Gross Amounts of Recognized Liabilities | | Gross Amounts of Assets Offset in the Consolidated Balance Sheet | | Net Amounts of Liabilities Presented in the Consolidated Balance Sheet | | Margin Deposit Amounts Not Offset in the Consolidated Balance Sheet | | Net Amount |
Derivative-related balances | | $ | (9,388 | ) | | $ | 2,050 | | | $ | (7,338 | ) | | $ | 18,304 | | | $ | 10,966 | |
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| | 30-Sep-13 |
Description | | Gross Amounts of Recognized Assets | | Gross Amounts of Liabilities Offset in the Consolidated Balance Sheet | | Net Amounts of Assets Presented in the Consolidated Balance Sheet | | Margin Deposit Amounts Not Offset in the Consolidated Balance Sheet | | Net Amount |
Derivative-related balances | | $ | 9,573 | | | $ | (166 | ) | | $ | 9,407 | | | $ | 10,294 | | | $ | 19,701 | |
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Impact of Derivatives on Income Statement, Balance Sheet and AOCL |
The changes in derivative activity included in accumulated other comprehensive loss ("AOCL") for the three and nine months ended September 30, 2012 and 2013 were as follows (in thousands): |
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| Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | |
Derivative Gains (Losses) Included in AOCL | 2012 | | 2013 | | 2012 | | 2013 | | | | | |
Beginning balance | $ | 5,754 | | | $ | 13,892 | | | $ | 3,161 | | | $ | 14,126 | | | | | | |
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Net gain (loss) on cash flow hedges | 9,666 | | | (36 | ) | | 12,341 | | | (4,596 | ) | | | | | |
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Reclassification of net loss (gain) on cash flow hedges to income | (1,425 | ) | | (41 | ) | | (1,507 | ) | | 4,285 | | | | | | |
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Ending balance | $ | 13,995 | | | $ | 13,815 | | | $ | 13,995 | | | $ | 13,815 | | | | | | |
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As of September 30, 2013, the net gain estimated to be classified to interest expense over the next twelve months from AOCL is approximately $0.2 million. |
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During 2013, we had open NYMEX contracts on 0.7 million barrels of crude oil that were designated as fair value hedges. These agreements hedge against the change in value of our crude oil linefill and tank bottom inventory. Because there was no ineffectiveness recognized on these hedges, the cumulative losses of $10.2 million from the agreements as of September 30, 2013 were fully offset by a cumulative increase of $10.2 million to tank bottom inventory and a cumulative increase of less than $0.1 million to our crude oil linefill, which is reported in other current assets; therefore, there was no net impact from these agreements on our results of operations. |
The following tables provide a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 2012 and 2013 of the effective portion of derivatives accounted for under ASC 815-30, Derivatives and Hedging—Cash Flow Hedges, that were designated as hedging instruments (in thousands): |
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| | Three Months Ended September 30, 2012 | | | | | | |
Derivative Instrument | | Amount of Gain (Loss) Recognized in AOCL on Derivative | | Location of Gain Reclassified from AOCL into Income | | Amount of Gain Reclassified from AOCL into Income | | | | | | |
Interest rate contracts | | | $ | 10,126 | | | | Interest expense | | | $ | 41 | | | | | | | | |
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NYMEX commodity contracts | | | (460 | ) | | | Product sales revenue | | | 1,384 | | | | | | | | |
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Total cash flow hedges | | | $ | 9,666 | | | | Total | | | $ | 1,425 | | | | | | | | |
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| | Three Months Ended September 30, 2013 | | | | | | |
Derivative Instrument | | Amount of Loss Recognized in AOCL on Derivative | | Location of Gain Reclassified from AOCL into Income | | Amount of Gain Reclassified from AOCL into Income | | | | | | |
Interest rate contracts | | | $ | (36 | ) | | | Interest expense | | | $ | 41 | | | | | | | | |
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NYMEX commodity contracts | | | — | | | | Product sales revenue | | | — | | | | | | | | |
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Total cash flow hedges | | | $ | (36 | ) | | | Total | | | $ | 41 | | | | | | | | |
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| | Nine Months Ended September 30, 2012 | | | | | | |
Derivative Instrument | | Amount of Gain Recognized in AOCL on Derivative | | Location of Gain Reclassified from AOCL into Income | | Amount of Gain Reclassified from AOCL into Income | | | | | | |
Interest rate contracts | | | $ | 11,134 | | | | Interest expense | | | $ | 123 | | | | | | | | |
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NYMEX commodity contracts | | | 1,207 | | | | Product sales revenue | | | 1,384 | | | | | | | | |
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Total cash flow hedges | | | $ | 12,341 | | | | Total | | | $ | 1,507 | | | | | | | | |
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| | Nine Months Ended September 30, 2013 | | | | | | |
Derivative Instrument | | Amount of Loss Recognized in AOCL on Derivative | | Location of Gain (Loss) Reclassified from AOCL into Income | | Amount of Gain (Loss) Reclassified from AOCL into Income | | | | | | |
Interest rate contracts | | | $ | (36 | ) | | | Interest expense | | | $ | 123 | | | | | | | | |
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NYMEX commodity contracts | | | (4,560 | ) | | | Product sales revenue | | | (4,408 | ) | | | | | | | |
Total cash flow hedges | | | $ | (4,596 | ) | | | Total | | | $ | (4,285 | ) | | | | | | | |
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There was no ineffectiveness recognized on the financial instruments disclosed in the above tables during the three or nine months ended September 30, 2012 or 2013. |
The following table provides a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 2012 and 2013 of derivatives accounted for under ASC 815-10-35; Derivatives and Hedging—Overall—Subsequent Measurement, that were not designated as hedging instruments (in thousands): |
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| | | Amount of Gain (Loss) Recognized on Derivative | | | |
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Derivative Instrument | Location of Gain (Loss) | | September 30, 2012 | | September 30, 2013 | | September 30, 2012 | | September 30, 2013 | | | |
Recognized on Derivative | | | |
NYMEX commodity contracts | Product sales revenue | | $ | (44,706 | ) | | $ | (2,035 | ) | | $ | (39,532 | ) | | $ | 8,546 | | | | |
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NYMEX commodity contracts | Operating expenses | | (7,733 | ) | | (3,107 | ) | | (3,216 | ) | | (1,645 | ) | | | |
Butane futures agreements | Product purchases | | 3,007 | | | 2,878 | | | (1,620 | ) | | 2,117 | | | | |
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| Total | | $ | (49,432 | ) | | $ | (2,264 | ) | | $ | (44,368 | ) | | $ | 9,018 | | | | |
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The following tables provide a summary of the fair value of derivatives accounted for under ASC 815, Derivatives and Hedging, which are presented on a net basis in our consolidated balance sheets, that were designated as hedging instruments as of December 31, 2012 and September 30, 2013 (in thousands): |
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| December 31, 2012 | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives | | | | | | | | | |
Derivative Instrument | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | | | | | | | | |
NYMEX commodity contracts | Energy commodity derivatives contracts, net | | $ | 473 | | | Energy commodity derivatives contracts, net | | $ | 207 | | | | | | | | | | |
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| September 30, 2013 | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives | | | | | | | | | |
Derivative Instrument | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | | | | | | | | |
NYMEX commodity contracts | Energy commodity derivatives contracts, net | | $ | 214 | | | Energy commodity derivatives contracts, net | | $ | — | | | | | | | | | | |
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NYMEX commodity contracts | Other noncurrent assets | | 966 | | | Other noncurrent liabilities | | — | | | | | | | | | | |
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Interest rate contracts | Other current assets | | — | | | Other current liabilities | | 36 | | | | | | | | | | |
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| Total | | $ | 1,180 | | | Total | | $ | 36 | | | | | | | | | | |
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The following tables provide a summary of the fair value of derivatives accounted for under ASC 815, Derivatives and Hedging, which are presented on a net basis in our consolidated balance sheets, that were not designated as hedging instruments as of December 31, 2012 and September 30, 2013 (in thousands): |
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| December 31, 2012 | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives | | | | | | | | | |
Derivative Instrument | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | | | | | | | | |
NYMEX commodity contracts | Energy commodity derivatives contracts, net | | $ | 227 | | | Energy commodity derivatives contracts, net | | $ | 8,954 | | | | | | | | | | |
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Butane futures agreements | Energy commodity derivatives contracts, net | | 1,350 | | | Energy commodity derivatives contracts, net | | 227 | | | | | | | | | | |
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| Total | | $ | 1,577 | | | Total | | $ | 9,181 | | | | | | | | | | |
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| September 30, 2013 | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives | | | | | | | | | |
Derivative Instrument | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | | | | | | | | |
NYMEX commodity contracts | Energy commodity derivatives contracts, net | | $ | 5,683 | | | Energy commodity derivatives contracts, net | | $ | 166 | | | | | | | | | | |
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Butane futures agreements | Energy commodity derivatives contracts, net | | 2,710 | | | Energy commodity derivatives contracts, net | | — | | | | | | | | | | |
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| Total | | $ | 8,393 | | | Total | | $ | 166 | | | | | | | | | | |
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