Derivative Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments, Investments and Fair Value Measurements

(10) Derivative Financial Instruments and Fair Value Measurements

Derivative Financial Instruments

The following outlines the net notional buy (sell) position of our commodity derivative instruments held as of June 30, 2023 and December 31, 2022:


(in thousands of barrels)	Commodity	June 30, 2023	December 31, 2022
Forwards	Crude	(113)	373
Swaps	NYMEX Diesel Cracks	(7,875)	—
Swaps	NYMEX RBOB Cracks	(3,250)	—
Swaps	NYMEX 2-1-1 Cracks	(7,380)	—
Futures	Crude	(50)	(150)
Futures	ULSD	(75)	(215)
Futures	Soybean	(278)	(109)

As of June 30, 2023, the Petroleum Segment had open fixed-price commitments to purchase a net amount of 63 million RINs.

The following outlines the realized and unrealized gains (losses) incurred from derivative activities, all of which were recorded in Cost of materials and other on the condensed consolidated statements of operations:



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2023		2022		2023		2022
Forwards	$	2	$	(4)	$	10	$	6
Swaps	—		(49)		29		(48)
Futures	(6)		(15)		2		(24)
Total (loss) gain on derivatives, net	$	(4)	$	(68)	$	41	$	(66)

Offsetting Assets and Liabilities

The following outlines the condensed consolidated balance sheet line items that include our derivative financial instruments and the effect of the collateral netting. Such amounts are presented on a gross basis, before the effects of collateral netting. The Company elected to offset the derivative assets and liabilities with the same counterparty on a net basis when the legal right of offset exists.


	June 30, 2023								December 31, 2022
	Derivatives				Collateral Netting		Net Value		Derivatives				Collateral Netting		Net Value
(in millions)	Assets		Liabilities						Assets		Liabilities
Prepaid expenses and other current assets	$	6	$	—	$	—	$	6	$	—	$	(1)	$	1	$	—
Other long-term assets	11		—		—		11		—		—		—		—
Other current liabilities	—		(10)		5		(5)		—		(4)		—		(4)

At June 30, 2023 and December 31, 2022, the Company had $9 million and $7 million of collateral under master netting arrangements not offset against the derivatives within Prepaid expenses and other current assets on the condensed consolidated balance sheets, respectively, primarily related to initial margin requirements. Our derivative instruments contain credit risk-related contingent provisions associated with our credit ratings. If our credit rating were to be downgraded, it would allow the counterparty to require us to post collateral or to request immediate, full settlement of derivative instruments in liability positions. There were no derivatives with credit risk-related contingent provisions that were in a net liability position as of June 30, 2023 and December 31, 2022.

Fair Value Measurements

The following tables set forth the assets and liabilities measured or disclosed at fair value on a recurring basis, by input level, as of June 30, 2023 and December 31, 2022:


	June 30, 2023
(in millions)	Level 1		Level 2		Level 3		Total
Location and description:


Prepaid expenses and other current assets (derivative financial instruments)	$	—	$	6	$	—	$	6
Other long-term assets (derivative financial instruments)	—		11		—		11

Total assets	$	—	$	17	$	—	$	17




Other current liabilities (RFS obligations)	$	—	$	(599)	$	—	$	(599)
Other current liabilities (derivative financial instruments)	—		(5)		—		(5)
Long-term debt and finance lease obligations, net of current portion (long-term debt)	—		(1,409)		—		(1,409)
Total liabilities	$	—	$	(2,013)	$	—	$	(2,013)


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






Other current liabilities (commodity derivatives)	$	—	$	(4)	$	—	$	(4)
Other current liabilities (RFS obligations)	—		(692)		—		(692)
Long-term debt and finance lease obligations, net of current portion (long-term debt)	—		(1,394)		—		(1,394)
Total liabilities	$	—	$	(2,090)	$	—	$	(2,090)

As of June 30, 2023 and December 31, 2022, the only financial assets and liabilities that are measured at fair value on a recurring basis are the Company’s derivative instruments 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 are valued using broker quoted market prices of identical or similar instruments and are considered Level 2 in the fair value hierarchy. Similarly, RFS obligations are valued using available broker quoted market RIN prices for each specific or closest vintage year and are considered Level 2 in the fair value hierarchy.

CVR Partners performed a non-recurring fair value measurement of the equity interest received as part of the 45Q Transaction in the first quarter of 2023. Such valuation used a combination of the market approach and the discounted cash flow methodology with key inputs including the discount rate, contractual and expected future cash flows, and market multiples. CVR Partners determined the estimated fair value of the consideration received to be $46 million, which is a non-recurring Level 3 measurement, as defined by FASB ASC Topic 820, Fair Value Measurements, based on the use of CVR Partners’ own assumptions described above. The Company had no transfers of assets or liabilities between any of the above levels during the six months ended June 30, 2023 and year ended December 31, 2022.