Derivative Financial Instruments, Investments and Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments, Investments and Fair Value Measurements

(10) Derivative Financial Instruments, Investments and Fair Value Measurements

Derivative Financial Instruments

Our segments 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 Petroleum Segment from time to time enters into various commodity derivative transactions. On a regular basis, the Company enters into commodity contracts with counterparties for the purchases or sale of crude oil, blendstocks, various finished products, and RINs. The contracts usually qualify for the normal purchase normal sale exception and follow the accrual method of accounting. All other derivative instruments are recorded at fair value using mark-to-market accounting on a periodic basis utilizing third-party pricing.

The Petroleum Segment holds derivative instruments, such as exchange-traded crude oil futures and over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges under GAAP. There are no premiums paid or received at inception of the derivative contracts or upon settlement. The Petroleum Segment may enter into forward purchase or sale contracts associated with RINs. As of March 31, 2022, the Petroleum Segment had open fixed-price commitments to purchase a net 1 million RINs.

Commodity derivatives include commodity swaps and forward purchase and sale commitments. There were 1 million barrels in outstanding commodity swap positions as of March 31, 2022. There were approximately 1 million barrels in forward purchase commitments and less than 1 million barrels in forward sale commitments as of March 31, 2022.

The following outlines the gains (losses) recognized on the Company’s derivative activities, all of which are recorded in Cost of materials and other on the condensed consolidated statements of operations:



	Three Months Ended March 31,
(in millions)		2022		2021
Forward purchases and sales contracts, net		$	9	$	18
Commodity swap instruments		2		(50)
Futures contracts		(9)		—
Total gain (loss) on derivatives, net		$	2	$	(32)

Offsetting Assets and Liabilities

The Company elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty. These amounts are recognized as current assets and current liabilities within the Prepaid expenses and other current assets and Other current liabilities financial statement line items, respectively, in the condensed consolidated balance sheets as follows:


	Derivative Assets				Derivative Liabilities
(in millions)	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Commodity derivatives	$	13	$	5	$	—	$	(7)

Less: Counterparty netting	—		(5)		—		5
Total net fair value of derivatives	$	13	$	—	$	—	$	(2)

Investments

Investments consist of equity securities, which are reported at fair value in our condensed consolidated balance sheets. These investments are considered trading securities. Investment income on marketable securities consists of the following:


	Three Months Ended March 31,
(in millions)		2022		2021

Gain on marketable securities		$	—	$	62
Investment income on marketable securities		$	—	$	62

On January 18, 2022, the Company divested its remaining nominal investment in Delek US Holdings, Inc. (“Delek”). As of March 31, 2022, the Company did not hold any investment in Delek.

Fair Value Measurements

In accordance with FASB ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.

ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

•Level 1 — Quoted prices in active markets for identical assets or liabilities

•Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)

•Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value)

The following tables set forth the assets and liabilities measured or disclosed at fair value on a recurring basis, by input level, as of March 31, 2022 and December 31, 2021:


	March 31, 2022
(in millions)	Level 1		Level 2		Level 3		Total
Location and description


Other current assets (commodity derivatives)	$	—	$	13	$	—	$	13

Total assets	$	—	$	13	$	—	$	13



Other current liabilities (RFS obligations)	$	—	$	(585)	$	—	$	(585)
Long-term debt and finance lease obligations, net of current portion (long-term debt)	—		(1,512)		—		(1,512)
Total liabilities	$	—	$	(2,097)	$	—	$	(2,097)


	December 31, 2021
(in millions)	Level 1		Level 2		Level 3		Total
Location and description


Other current assets (commodity derivatives)	$	—	$	1	$	—	$	1

Total assets	$	—	$	1	$	—	$	1

Other current liabilities (commodity derivatives)	$	—	$	(2)	$	—	$	(2)

Other current liabilities (RFS obligations)	—		(494)		—		(494)
Long-term debt and finance lease obligations, net of current portion (long-term debt)	—		(1,620)		—		(1,620)
Total liabilities	$	—	$	(2,116)	$	—	$	(2,116)

As of March 31, 2022 and December 31, 2021, the only financial assets and liabilities that are measured at fair value on a recurring basis are the Company’s investments, derivative instruments, long-term debt, and the RFS obligations. The estimated fair value of cash equivalents, including amounts invested in short-term money market funds, and restricted cash approximate their carrying amounts. The Petroleum Segment’s commodity derivative contracts and RFS obligation, which use fair value measurements and are valued using broker quoted market prices of similar instruments, are considered Level 2 inputs. The Company had no transfers of assets or liabilities between any of the above levels during the three months ended March 31, 2022.