Derivative Financial Instruments | 6 Months Ended |
Jun. 30, 2014 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Derivative Instruments and Hedging Activities Disclosure | ' |
Derivative Financial Instruments |
Mark to Market |
Commodity Derivatives. We selectively utilize crude oil and refined product commodity derivative contracts to reduce the risk associated with potential price changes on committed obligations. We do not speculate using derivative instruments. Credit risk on our derivative instruments is mitigated by transacting with counterparties meeting established collateral and credit criteria. |
Fair Value Hedge |
Fair value hedges are used to hedge price volatility of certain refining inventories and firm commitments to purchase inventories. The gain or loss on a derivative instrument designated and qualifying as a fair value hedge, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, is recognized in earnings in the same period. |
As of June 30, 2014, we have accounted for certain commodity contracts as fair value hedges with contract purchase volumes of 304 thousand barrels of crude oil with remaining contract terms through May 2019. |
The following tables present the effect of derivative instruments on the consolidated statements of financial position: |
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| As of June 30, 2014 | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives | | | | | | | | | | | | |
| Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | |
Commodity contracts (futures and forwards) | Accounts receivable | | $ | 520 | | | Accrued liabilities | | $ | 849 | | | | | | | | | | | | | |
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Total derivatives not designated as hedging instruments | | | $ | 520 | | | | | $ | 849 | | | | | | | | | | | | | |
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Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | |
Fair value hedge | | | $ | — | | | Other non-current liabilities | | $ | 4,696 | | | | | | | | | | | | | |
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Total derivatives designated as hedging instruments | | | — | | | | | 4,696 | | | | | | | | | | | | | |
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Total derivatives | | | $ | 520 | | | | | $ | 5,545 | | | | | | | | | | | | | |
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| As of December 31, 2013 | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives | | | | | | | | | | | | |
| Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | | | | |
Commodity contracts (futures and forwards) | Accounts receivable | | $ | 303 | | | Accrued liabilities | | $ | 281 | | | | | | | | | | | | | |
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Total derivatives not designated as hedging instruments | | | $ | 303 | | | | | $ | 281 | | | | | | | | | | | | | |
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Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | | | | |
Fair value hedge | | | $ | — | | | Other non-current liabilities | | $ | 2,304 | | | | | | | | | | | | | |
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Total derivatives designated as hedging instruments | | | — | | | | | 2,304 | | | | | | | | | | | | | |
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Total derivatives | | | $ | 303 | | | | | $ | 2,585 | | | | | | | | | | | | | |
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The following tables present the effect of derivative instruments on the consolidated statements of operations: |
Derivatives in fair value hedging relationships: |
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| | | Gain (Loss) Recognized in Income | | | | | | |
| | | For the Three Months Ended | | For the Six Months Ended | | | | | | |
| | | June 30, | | June 30, | | | | | | |
| Location | | 2014 | | 2013 | | 2014 | | 2013 | | | | | | |
Fair value hedge | Cost of sales | | $ | (1,569 | ) | | $ | (4 | ) | | $ | (2,392 | ) | | $ | (1,598 | ) | | | | | | |
Total derivatives | | | $ | (1,569 | ) | | $ | (4 | ) | | $ | (2,392 | ) | | $ | (1,598 | ) | | | | | | |
Derivatives not designated as hedging instruments: |
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| | | Gain (Loss) Recognized in Income | | | | | | |
| | | For the Three Months Ended | | For the Six Months Ended | | | | | | |
| | | June 30, | | June 30, | | | | | | |
| Location | | 2014 | | 2013 | | 2014 | | 2013 | | | | | | |
Commodity contracts (futures & forwards) | Cost of sales | | $ | (2,898 | ) | | $ | (1,001 | ) | | $ | (2,275 | ) | | $ | 6,650 | | | | | | | |
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Total derivatives | | | $ | (2,898 | ) | | $ | (1,001 | ) | | $ | (2,275 | ) | | $ | 6,650 | | | | | | | |
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Offsetting Assets and Liabilities |
Our derivative financial instruments are subject to master netting arrangements to manage counterparty credit risk associated with derivatives and we offset the fair value amounts recorded for derivative instruments to the extent possible under these agreements on our consolidated balance sheets. |
The following table presents offsetting information regarding our derivatives by type of transaction as of June 30, 2014 and December 31, 2013: |
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| Gross Amounts of Recognized Assets/Liabilities | | Gross Amounts offset in the Statement of Financial Position | | Net Amounts Presented in the Statement of Financial Position | | Gross Amounts Not offset in the Statement of Financial Position | | Net Amount |
| | | Financial Instruments | | Cash Collateral Pledged | |
As of June 30, 2014 | | | | | | | | | | |
Derivative Assets: | | | | | | | | | | |
Commodity contracts (futures & forwards) | $ | 566 | | | $ | (46 | ) | | $ | 520 | | | $ | (520 | ) | | $ | — | | | $ | — | |
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Derivative Liabilities: | | | | | | | | | | |
Commodity contracts (futures & forwards) | $ | 895 | | | $ | (46 | ) | | $ | 849 | | | $ | (520 | ) | | $ | — | | | $ | 329 | |
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Fair value hedge | 4,696 | | | — | | | 4,696 | | | — | | | — | | | 4,696 | |
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As of December 31, 2013 | | | | | | | | | | |
Derivative Assets: | | | | | | | | | | |
Commodity contracts (futures & forwards) | $ | 514 | | | $ | (211 | ) | | $ | 303 | | | $ | (281 | ) | | $ | — | | | $ | 22 | |
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Derivative Liabilities: | | | | | | | | | | |
Commodity contracts (futures & forwards) | $ | 492 | | | $ | (211 | ) | | $ | 281 | | | $ | (281 | ) | | $ | — | | | $ | — | |
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Fair value hedge | 2,304 | | | — | | | 2,304 | | | — | | | — | | | 2,304 | |
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Compliance Program Market Risk |
We are obligated by government regulations to blend a certain percentage of biofuels into the products we produce that are consumed in the U.S. We purchase biofuels from third parties and blend those biofuels into our products, and each gallon of biofuel purchased includes a RIN. To the degree we are unable to blend biofuels at the required percentage, a RINs deficit is generated and we must acquire that number of RINs by the annual reporting deadline in order to remain in compliance with applicable regulations. |
We are exposed to market risk related to the volatility in the price of credits needed to comply with these government regulations. We manage this risk by purchasing RINs when prices are deemed favorable utilizing fixed price purchase contracts. Some of these contracts are derivative instruments; however, we elect the normal purchase and sale exception and do not record these contracts at their fair values. |
During the three months ended June 30, 2014, we generated RINs credits of $759, as a result of reduced production during the planned turnaround at our refinery, compared to RINs costs of $8,016 for three months ended June 30, 2013. RINs costs were $2,167 and $8,016 for the six months ended June 30, 2014 and 2013, respectively. These amounts are reflected in cost of sales. We utilized carryover RINs from 2012 to completely offset our first quarter 2013 RINs deficit. |