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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2012
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS |
12. | FAIR VALUE MEASUREMENTS
General GAAP requires that certain financial instruments, such as derivative instruments, be recognized at their fair values in our balance sheets. However, other financial instruments, such as debt obligations, are not required to be recognized at their fair values, but GAAP provides an option to elect fair value accounting for these instruments. GAAP requires the disclosure of the fair values of all financial instruments, regardless of whether they are recognized at their fair values or carrying amounts in our balance sheets. For financial instruments recognized at fair value, GAAP requires the disclosure of their fair values by type of instrument, along with other information, including changes in the fair values of certain financial instruments recognized in income or other comprehensive income, and this information is provided below under “Recurring Fair Value Measurements.” For financial instruments not recognized at fair value, the disclosure of their fair values is provided below under “Other Financial Instruments.” Nonfinancial assets, such as property, plant and equipment, and nonfinancial liabilities are recognized at their carrying amounts in our balance sheets. GAAP does not permit nonfinancial assets and liabilities to be remeasured at their fair values. However, GAAP requires the remeasurement of such assets and liabilities to their fair values upon the occurrence of certain events, such as the impairment of property, plant and equipment. In addition, if such an event occurs, GAAP requires the disclosure of the fair value of the asset or liability along with other information, including the gain or loss recognized in income in the period the remeasurement occurred. This information is provided below under “Nonrecurring Fair Value Measurements.” GAAP provides a framework for measuring fair value and establishes a three-level fair value hierarchy that prioritizes inputs to valuation techniques based on the degree to which objective prices in external active markets are available to measure fair value. Following is a description of each of the levels of the fair value hierarchy.
• | Level 1 - Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.
• | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
• | Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect our own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include occasional market quotes or sales of similar instruments or our own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant judgment.
The financial instruments and nonfinancial assets and liabilities included in our disclosure of recurring and nonrecurring fair value measurements are categorized according to the fair value hierarchy based on the inputs used to measure their fair values. Recurring Fair Value Measurements The tables below present information (in millions) about our financial instruments recognized at their fair values in our balance sheets categorized according to the fair value hierarchy of the inputs utilized by us to determine the fair values as of September 30, 2012 and December 31, 2011. Cash collateral deposits of $213 million and $136 million with brokers under master netting arrangements are included in the fair value of the commodity derivatives reflected in Level 1 as of September 30, 2012 and December 31, 2011, respectively. Certain of our commodity derivative contracts under master netting arrangements include both asset and liability positions. We have elected to offset the fair value amounts recognized for multiple similar derivative instruments executed with the same counterparty, including any related cash collateral asset or obligation under the column “Netting Adjustments” below; however, fair value amounts by hierarchy level are presented on a gross basis in the tables below.
| Fair Value Measurements Using |  |  |  |
| Quoted Prices in Active Markets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Netting Adjustments |  | Total Fair Value as of September 30, 2012
Assets: |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 3,351 |  |  | $ | 105 |  |  | $ | — |  |  | $ | (3,292 | ) |  | $ | 164 |
Physical purchase contracts | — |  |  | 3 |  |  | — |  |  | — |  |  | 3 |
Investments of certain benefit plans | 88 |  |  | — |  |  | 11 |  |  | — |  |  | 99 |
Foreign currency contracts | 3 |  |  | — |  |  | — |  |  | — |  |  | 3 |
Other investments | — |  |  | — |  |  | — |  |  | — |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |
Commodity derivative contracts | 3,191 |  |  | 117 |  |  | — |  |  | (3,292 | ) |  | 16 |
Biofuels blending obligation | 6 |  |  | — |  |  | — |  |  | — |  |  | 6 |
Foreign currency contracts | 1 |  |  | — |  |  | — |  |  | — |  |  | 1 |
| Fair Value Measurements Using |  |  |  |
| Quoted Prices in Active Markets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Netting Adjustments |  | Total Fair Value as of December 31, 2011
Assets: |  |  |  |  |  |  |  |  |
Commodity derivative contracts | $ | 2,038 |  |  | $ | 78 |  |  | $ | — |  |  | $ | (1,940 | ) |  | $ | 176 |
Physical purchase contracts | — |  |  | (2 | ) |  | — |  |  | — |  |  | (2 | )
Investments of certain benefit plans | 84 |  |  | — |  |  | 11 |  |  | — |  |  | 95 |
Other investments | — |  |  | — |  |  | — |  |  | — |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |
Commodity derivative contracts | 1,864 |  |  | 101 |  |  | — |  |  | (1,940 | ) |  | 25 |
Foreign currency contracts | 3 |  |  | — |  |  | — |  |  | — |  |  | 3 |
A description of our financial instruments and the valuation methods used to measure those instruments at fair value are as follows:
• | Commodity derivative contracts consist primarily of exchange-traded futures and swaps, and as disclosed in Note 13, some of these contracts are designated as hedging instruments. These contracts are measured at fair value using the market approach. Exchange-traded futures are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. Swaps are priced using third-party broker quotes, industry pricing services, and exchange-traded curves, with appropriate consideration of counterparty credit risk, but because they have contractual terms that are not identical to exchange-traded futures instruments with a comparable market price, these financial instruments are categorized in Level 2 of the fair value hierarchy.
• | Physical purchase contracts to purchase inventories represent the fair value of firm commitments to purchase crude oil feedstocks and the fair value of fixed-price corn purchase contracts, and as disclosed in Note 13, some of these contracts are designated as hedging instruments. The fair values of these firm commitments and purchase contracts are measured using a market approach based on quoted prices from the commodity exchange, but because these commitments have contractual terms that are not identical to exchange-traded futures instruments with a comparable market price, they are categorized in Level 2 of the fair value hierarchy.
• | Investments of certain benefit plans consist of investment securities held by trusts for the purpose of satisfying a portion of our obligations under certain U.S. nonqualified benefit plans. The assets categorized in Level 1 of the fair value hierarchy are measured at fair value using a market approach based on quoted prices from national securities exchanges. The assets categorized in Level 3 of the fair value hierarchy represent insurance contracts, the fair value of which is provided by the insurer.
• | Foreign currency contracts consist of foreign currency exchange and purchase contracts entered into by our international operations to manage our exposure to exchange rate fluctuations on transactions denominated in currencies other than the local (functional) currencies of those operations. These contracts are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy.
• | Other investments consist of (i) equity securities of private companies over which we do not exercise significant influence nor whose financial statements are consolidated into our financial statements and (ii) debt securities of a private company whose financial statements are not consolidated into our financial statements. We have elected to account for these investments at their fair values. These investments are categorized in Level 3 of the fair value hierarchy as the fair values of these investments are determined using the income approach based on internally developed analyses.
• | Our biofuels blending obligation represents a liability for the purchase of RINs and RTFCs, as defined and described in Note 13 under “Compliance Program Price Risk,” to satisfy our obligation to blend biofuels into the products we produce. Our obligation is based on our deficiency in RINs and RTFCs and the price of these instruments as of the balance sheet date. Our obligation is categorized in Level 1 of the fair value hierarchy and is measured at fair value using the market approach based on quoted prices from an independent pricing service.
During the nine months ended September 30, 2012 and 2011, there were no transfers between assets classified as Level 1 and Level 2. The following is a reconciliation of the beginning and ending balances (in millions) for fair value measurements developed using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2012 and 2011.
| 2012 |  | 2011
| Investments of Certain Benefit Plans |  | Other Investments |  | Investments of Certain Benefit Plans |  | Other Investments
Three months ended September 30: |  |  |  |  |  |  |
Balance as of beginning of period | $ | 11 |  |  | $ | — |  |  | $ | 11 |  |  | $ | — |
Purchases | — |  |  | — |  |  | — |  |  | 5 |
Total gains (losses): |  |  |  |  |  |  |
Included in refining operating expenses | — |  |  | — |  |  | — |  |  | (5 | )
Transfers in and/or out of Level 3 | — |  |  | — |  |  | — |  |  | — |
Balance as of end of period | $ | 11 |  |  | $ | — |  |  | $ | 11 |  |  | $ | — |
The amount of total gains (losses) included in income attributable to the change in unrealized gains (losses) relating to assets still held at end of period | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (5 | )
Nine months ended September 30: |  |  |  |  |  |  |
Balance as of beginning of period | $ | 11 |  |  | $ | — |  |  | $ | 10 |  |  | $ | — |
Purchases | — |  |  | — |  |  | — |  |  | 21 |
Total gains (losses): |  |  |  |  |  |  |
Included in refining operating expenses | — |  |  | — |  |  | 1 |  |  | (21 | )
Transfers in and/or out of Level 3 | — |  |  | — |  |  | — |  |  | — |
Balance as of end of period | $ | 11 |  |  | $ | — |  |  | $ | 11 |  |  | $ | — |
The amount of total gains (losses) included in income attributable to the change in unrealized gains (losses) relating to assets still held at end of period | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | (21 | )
Nonrecurring Fair Value Measurements The table below presents the fair value (in millions) of our nonfinancial assets measured on a nonrecurring basis during the nine months ended September 30, 2012 and categorized according to the fair value hierarchy of the inputs utilized by us to determine the fair values as of September 30, 2012.
| Fair Value Measurements Using |  |  |  | Total Loss Recognized During the Nine Months Ended September 30, 2012
| Quoted Prices in Active Markets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total Fair Value as of September 30, 2012 |
Assets: |  |  |  |  |  |  |  |  |
Long-lived assets of the Aruba Refinery | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 903 |
Materials and supplies inventories of the Aruba Refinery | — |  |  | — |  |  | — |  |  | — |  |  | 25 |
Cancelled capital project | — |  |  | — |  |  | 2 |  |  | 2 |  |  | 16 |
Property, plant and equipment of convenience stores | — |  |  | — |  |  | 5 |  |  | 5 |  |  | 12 |
There were no liabilities that were measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012. There were no assets or liabilities that were measured at fair value on a nonrecurring basis during the nine months ended September 30, 2011. Aruba Refinery As discussed in Note 3, we concluded that the Aruba Refinery was impaired as of March 31, 2012. As a result, we were required to determine the fair value of the Aruba Refinery and to write down its carrying value to that amount. We determined that the best measure of the refinery’s fair value as of March 31, 2012 was the $350 million offer received and accepted, subject to the finalization of the purchase and sale agreement. The fair value of the Aruba Refinery was measured using the market approach and was categorized in Level 3 within the fair value hierarchy. The carrying value of the Aruba Refinery’s long-lived assets as of March 31, 2012 was $945 million; therefore, we recognized an asset impairment loss of $595 million in March 2012. As further discussed in Note 3, in September 2012, we decided to reorganize the Aruba Refinery into a crude oil and refined products terminal in response to the August 2012 withdrawal of a non-binding offer to purchase the refinery. Because of our decision to reorganize the Aruba Refinery into a crude oil and refined products terminal, we evaluated the refining assets for potential impairment as of September 30, 2012. We concluded that these refining assets were impaired and determined that their carrying value of $308 million was not recoverable through the future operations and disposition of the refinery. We determined that these refining assets had no value after considering estimated salvage costs, resulting in an asset impairment loss of $308 million that was recorded in September 2012. We also recognized an asset impairment loss of $25 million related to materials and supplies inventories that supported the refining operations, resulting in a total asset impairment loss of $333 million in September 2012. Other Assets We recognized an asset impairment loss of $16 million in March 2012 related to equipment associated with a capital project that was cancelled permanently in 2009. We had written down the carrying value of this equipment to fair value in 2009, but we had been unable to sell the equipment. As a result, we wrote down the carrying amount of the equipment to scrap value. We evaluated certain convenience stores operated by our retail segment for potential impairment as of September 30, 2012 and concluded that they were impaired. We wrote down the carrying values of these stores to their estimated fair values, which totaled $5 million, resulting in an asset impairment loss of $12 million that was recorded in September 2012. Other Financial Instruments Financial instruments that we recognize in our balance sheets at their carrying amounts are shown in the table below (in millions):
| September 30, 2012 |  | December 31, 2011
| Carrying Amount |  | Fair Value |  | Carrying Amount |  |  | Fair Value |
Financial assets: |  |  |  |  |  |  |
Cash and temporary cash investments | $ | 2,549 |  |  | $ | 2,549 |  |  | $ | 1,024 |  |  | $ | 1,024 |
Financial liabilities: |  |  |  |  |  |  |
Debt (excluding capital leases) | 6,997 |  |  | 8,576 |  |  | 7,690 |  |  | 9,298 |
The methods and significant assumptions used to estimate the fair value of these financial instruments are as follows:
• | The fair value of cash and temporary cash investments approximates the carrying value due to the low level of credit risk of these assets combined with their short maturities and market interest rates (Level 1).
• | The fair value of debt is determined primarily using the market approach based on quoted prices provided by third-party brokers and vendor pricing services, but are not exchange-traded (Level 2).

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19207-110258 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 + Details
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