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Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2013
Derivative Financial Instruments  
Derivative Financial Instruments

(13) Derivative Financial Instruments

        Loss on derivatives, net consisted of the following:

 
   Three Months Ended
March 31,		  
 
   2013   2012  
 
   (in thousands)
  

Realized loss on derivative agreements

   $ (52,515 ) $ (19,086 )

Unrealized gain (loss) on derivative agreements

     32,489     (128,167 )
           

Total loss on derivatives, net

   $ (20,026 ) $ (147,253 )
           

        The Refining Partnership and Nitrogen Fertilizer Partnership are subject to price fluctuations caused by supply conditions, weather, economic conditions, interest rate fluctuations and other factors. To manage price risk on crude oil and other inventories and to fix margins on certain future production, the Refining Partnership from time to time enters into various commodity derivative transactions.

        The Refining Partnership has adopted accounting standards which impose extensive record-keeping requirements in order to designate a derivative financial instrument as a hedge. The Refining Partnership holds derivative instruments, such as exchange-traded crude oil futures and certain over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges for GAAP purposes. Gains or losses related to the change in fair value and periodic settlements of these derivative instruments are classified as loss on derivatives, net in the Condensed Consolidated Statements of Operations.

        The Refining Partnership maintains a margin account to facilitate other commodity derivative activities. A portion of this account may include funds available for withdrawal. These funds are included in cash and cash equivalents within the Condensed Consolidated Balance Sheets. The maintenance margin balance is included within other current assets within the Condensed Consolidated Balance Sheets. Dependent upon the position of the open commodity derivatives, the amounts are accounted for as an other current asset or an other current liability within the Condensed Consolidated Balance Sheets. From time to time, the Refining Partnership may be required to deposit additional funds into this margin account. The fair value of the open commodity positions as of March 31, 2013 was a net loss of $0.3 million included in other current liabilities. For the three months ended March 31, 2013 and 2012, the Refining Partnership recognized a realized loss of $2.0 million and $8.2 million, respectively, which is recorded in realized loss on derivatives, net in the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2013 and 2012, the Refining Partnership recognized an unrealized loss of $0.2 million and unrealized gain of $0.2 million, respectively, which are recorded in unrealized gain (loss) on derivatives, net in the Condensed Consolidated Statements of Operations.

  • Commodity Swap

        The Refining Partnership enters into commodity swap contracts in order to fix the margin on a portion of future production. The physical volumes are not exchanged and these contracts are net settled with cash. The contract fair value of the commodity swaps is reflected on the Condensed Consolidated Balance Sheets with changes in fair value currently recognized in the Condensed Consolidated Statements of Operations. Quoted prices for similar assets or liabilities in active markets (Level 2) are considered to determine the fair values for the purpose of marking to market the hedging instruments at each period end. At March 31, 2013 and December 31, 2012, the Refining Partnership had open commodity hedging instruments consisting of 22.8 million barrels and 23.3 million barrels of crack spreads, respectively, primarily to fix the margin on a portion of its future gasoline and distillate production. The fair value of the outstanding contracts at March 31, 2013 was a net unrealized loss of $34.1 million, $35.5 million of which is included in current liabilities and $1.4 million is included in non-current assets. For the three months ended March 31, 2013 and 2012, the Refining Partnership recognized a realized loss of $50.5 million and $10.9 million, respectively, which is recorded in realized loss on derivatives, net in the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2013 and 2012, the Refining Partnership recognized an unrealized gain of $32.7 million and unrealized loss of $128.3 million, respectively, which are recorded in unrealized gain (loss) on derivatives, net in the Condensed Consolidated Statements of Operations.

  • Nitrogen Fertilizer Partnership Interest Rate Swap

        On June 30 and July 1, 2011, CRNF entered into two floating-to-fixed interest rate swap agreements for the purpose of hedging the interest rate risk associated with a portion of the nitrogen fertilizer business' $125.0 million floating rate term debt which matures in April 2016. See Note 8 ("Long-Term Debt"). The aggregate notional amount covered under these agreements, which commenced on August 12, 2011 and expires on February 12, 2016, totals $62.5 million (split evenly between the two agreement dates). Under the terms of the interest rate swap agreement entered into on June 30, 2011, CRNF will receive a floating rate based on three month LIBOR and pay a fixed rate of 1.94%. Under the terms of the interest rate swap agreement entered into on July 1, 2011, CRNF will receive a floating rate based on three month LIBOR and pay a fixed rate of 1.975%. Both swap agreements are settled every 90 days. The effect of these swap agreements is to lock in a fixed rate of interest of approximately 1.96% plus the applicable margin paid to lenders over three month LIBOR as calculated under the CRNF credit agreement. At March 31, 2013, the effective rate was approximately 4.58%. The agreements were designated as cash flow hedges at inception and accordingly, the effective portion of the gain or loss on the swap is reported as a component of accumulated other comprehensive income (loss) ("AOCI"), and will be reclassified into interest expense when the interest rate swap transaction affects earnings. The ineffective portion of the gain or loss will be recognized immediately in current interest expense on the Condensed Consolidated Statements of Operations. The realized loss on the interest rate swap re-classed from AOCI into interest expense and other financing costs on the Condensed Consolidated Statements of Operations was $0.3 million and $0.2 million for three months ended March 31, 2013 and 2012, respectively. For the three months ended March 31, 2013 and 2012, the decrease in the fair value of the interest rate swap agreements of $46,000 and $0.2 million, respectively, which was unrealized, was recognized in accumulated other comprehensive income.

  • Offsetting Assets and Liabilities

        The commodity swaps and other commodity derivatives agreements discussed above include multiple derivative positions with a number of counterparties for which the Refining Partnership has entered into agreements governing the nature of the derivative transactions. Each of the counterparty agreements provides for the right to setoff each individual derivative position to arrive at the net receivable due from the counterparty or payable owed by the Refining Partnership. As a result of the right to setoff, the Refining Partnership's recognized assets and liabilities associated with the outstanding derivative positions have been presented net in the Condensed Consolidated Balance Sheets. The interest rate swap agreements held by the Nitrogen Fertilizer Partnership also provide for the right to setoff. However, as the interest rate swaps are in a liability position, there are no amounts offset in the Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012. In accordance with guidance issued by the FASB related to "Disclosures about Offsetting Assets and Liabilities," the tables below outline the gross amounts of the recognized assets and liabilities and the gross amounts offset in the Condensed Consolidated Balance Sheets for the various types of open derivative positions at the Refining Partnership.

        The offsetting assets and liabilities for the Refining Partnership's derivatives as of March 31, 2013 are recorded as non-current assets in other long-term assets in the Condensed Consolidated Balance Sheets and as current liabilities in other current liabilities in the Condensed Consolidated Balance Sheets as follows:

 
   As of March 31, 2013  
Description
  Gross
Non-
Current
Assets		   Gross
Amounts
Offset		   Net
Non-
Current
Assets
Presented		   Cash
Collateral
Not Offset		   Net
Amount		  
 
   (in thousands)
  

Commodity Swaps

   $ 1,463   $ (2 ) $ 1,461   $ —   $ 1,461  
                       

Total

   $ 1,463   $ (2 ) $ 1,461   $ —   $ 1,461  
                       

 

 
   As of March 31, 2013  
Description
  Gross
Current
Liabilities		   Gross
Amounts
Offset		   Net
Current
Liabilities
Presented		   Cash
Collateral
Not Offset		   Net
Amount		  
 
   (in thousands)
  

Commodity Swaps

   $ 54,588   $ (19,058 ) $ 35,530   $ —   $ 35,530  

Other Derivative Activity

     251     —     251     (251 )   —  
                       

Total

   $ 54,839   $ (19,058 ) $ 35,781   $ (251 ) $ 35,530  
                       

        The offsetting assets and liabilities for the Refining Partnership's derivatives as of December 31, 2012 are recorded as non-current assets in other long-term assets in the Condensed Consolidated Balance Sheets and as current liabilities in other current liabilities in the Condensed Consolidated Balance Sheets as follows:

 
   As of December 31, 2012  
Description
  Gross
Non-
Current
Assets		   Gross
Amounts
Offset		   Net
Non-
Current
Assets
Presented		   Cash
Collateral
Not Offset		   Net
Amount		  
 
   (in thousands)
  

Commodity Swaps

   $ 945   $ (7 ) $ 938   $ —   $ 938  
                       

Total

   $ 945   $ (7 ) $ 938   $ —   $ 938  
                       

 

 
   As of December 31, 2012  
Description
  Gross
Current
Liabilities		   Gross
Amounts
Offset		   Net
Current
Liabilities
Presented		   Cash
Collateral
Not Offset		   Net
Amount		  
 
   (in thousands)
  

Commodity Swaps

   $ 74,178   $ (6,445 ) $ 67,733   $ —   $ 67,733  

Other Derivative Activity

     21     (7 )   14     (14 )   —  
                       

Total

   $ 74,199   $ (6,452 ) $ 67,747   $ (14 ) $ 67,733