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Derivatives | 3 Months Ended
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Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives Crude Oil and Petroleum Products Hedges We have exposure to commodity price changes related to our petroleum inventory and purchase commitments. We utilize derivative instruments (exchange-traded futures, options and swap contracts) to hedge our exposure to crude oil, fuel oil and other petroleum products. Our decision as to whether to designate derivative instruments as fair value hedges for accounting purposes relates to our expectations of the length of time we expect to have the commodity price exposure and our expectations as to whether the derivative contract will qualify as highly effective under accounting guidance in limiting our exposure to commodity price risk. We recognize any changes in the fair value of our derivative contracts as increases or decreases in “Onshore facilities and transportation product costs” in the Unaudited Condensed Consolidated Statements of Operations. The recognition of changes in fair value of the derivative contracts not designated as hedges for accounting purposes can occur in reporting periods that do not coincide with the recognition of gain or loss on the actual transaction being hedged. Therefore, we will, on occasion, report gains or losses in one period that will be partially offset by gains or losses in a future period when the hedged transaction is completed. We have designated certain crude oil futures contracts as hedges of crude oil inventory due to our expectation that these contracts will be highly effective in hedging our exposure to fluctuations in crude oil prices during the period that we expect to hold that inventory. We account for these derivative instruments as fair value hedges under the accounting guidance. Changes in the fair value of these derivative instruments designated as fair value hedges are used to offset related changes in the fair value of the hedged crude oil inventory. Any hedge ineffectiveness in these fair value hedges and any amounts excluded from effectiveness testing are recorded as a gain or loss within “Onshore facilities and transportation product costs” in the Unaudited Condensed Consolidated Statements of Operations. Natural Gas Hedges Our Alkali Business relies on natural gas to generate heat and electricity for operations. We use a combination of commodity price swap contracts, future purchase contracts, and option contracts to manage our exposure to fluctuations in natural gas prices. The swap contracts are used to fix the basis differential between NYMEX Henry Hub and NW Rocky Mountain posted prices. We do not designate these contracts as hedges for accounting purposes. We recognize any changes in fair value of natural gas derivative contracts as increases or decreases within “Soda and sulfur services operating costs” in the Unaudited Condensed Consolidated Statements of Operations. Forward Freight Hedges ANSAC is exposed to fluctuations in freight rates for vessels used to transport soda ash to our international customers. We use exchange-traded or over-the-counter futures, swaps and options to hedge future freight rates for forecasted shipments. We do not designate these contracts as hedges for accounting purposes. We recognize any changes in fair value of forward freight contracts as increases or decreases within “Soda and sulfur services operating costs” in the Unaudited Condensed Consolidated Statements of Operations. Bunker Fuel Hedges ANSAC is exposed to fluctuations in the price of bunker fuel consumed by vessels used to transport soda ash to our international customers. We use exchange-traded or over-the-counter futures, swaps and options to hedge bunker fuel prices for forecasted shipments. We do not designate these contracts as hedges for accounting purposes. We recognize any changes in fair value of bunker fuel contracts as increases or decreases within “Soda and sulfur services operating costs” in the Unaudited Condensed Consolidated Statements of Operations. Rail Fuel Surcharge Hedges ANSAC enters into rail transport agreements that require us to pay rail fuel surcharges based on changes in the U.S. On-Highway Diesel Fuel Price published by the U.S. Department of Energy (“DOE”). We use exchange-traded or over-the-counter futures, swaps and options to hedge fluctuations in the fuel price. We do not designate these contracts as hedges for accounting purposes. We recognize any changes in fair value of bunker fuel contracts as increases or decreases within “Soda and sulfur services operating costs” in the Unaudited Condensed Consolidated Statements of Operations. Balance Sheet Netting and Broker Margin Accounts Our accounting policy is to offset derivative assets and liabilities executed with the same counterparty when a master netting arrangement exists. Accordingly, we also offset fair value amounts recorded for our exchange-traded derivative contracts against required margin funding in “Current Assets - Other” in our Unaudited Condensed Consolidated Balance Sheets. Our exchange-traded derivatives are transacted through brokerage accounts and are subject to margin requirements as established by the respective exchange. Margin requirements are intended to mitigate a party’s exposure to market volatility and counterparty credit risk. On a daily basis, our account equity (consisting of the sum of our cash margin balance and the fair value of our open derivatives) is compared to our initial margin requirement resulting in the payment or return of variation margin. As of March 31, 2023, we had a net broker receivable of approximately $10.5 million (consisting of initial margin of $8.2 million increased by $2.3 million variation margin). As of December 31, 2022, we had a net broker receivable of approximately $4.0 million (consisting of initial margin of $3.8 million increased by $0.2 million of variation margin). At March 31, 2023 and December 31, 2022, none of our outstanding derivatives contained credit-risk related contingent features that would result in a material adverse impact to us upon any change in our credit ratings. Financial Statement Impacts Unrealized gains are subtracted from net income (loss) and unrealized losses are added to net income (loss) in determining cash flows from operating activities. To the extent that we have fair value hedges outstanding, the offsetting change recorded in the fair value of inventory is also eliminated from net income (loss) in determining cash flows from operating activities. Changes in the cash margin balance required to maintain our exchange-traded derivative contracts also affect cash flows from operating activities. Outstanding Derivatives At March 31, 2023, we had the following outstanding derivative contracts that were entered into to economically hedge inventory, fixed price purchase commitments or forecasted purchases.
|  | Sell (Short) Contracts |  | Buy (Long) Contracts
Designated as hedges under accounting rules: |  |  |  |
Crude oil futures: |  |  |  |
Contract volumes (1,000 Bbls) |  | 282 |  |  | — |
Weighted average contract price per Bbl |  | $ | 73.87 |  |  | $ | — |
Not qualifying or not designated as hedges under accounting rules: |  |  |  |
Crude oil futures: |  |  |  |
Contract volumes (1,000 Bbls) |  | 180 |  |  | 117 |
Weighted average contract price per Bbl |  | $ | 72.05 |  |  | $ | 70.46 |
Crude oil basis differentials: |  |  |  |
Contract volumes (1,000 Bbls) |  | 40 |  |  | — |
Weighted average contract price per Bbl |  | $ | (0.50) |  |  | $ | — |
Natural gas swaps: |  |  |  |
Contract volumes (10,000 MMBtu) |  | — |  |  | 1,502 |
Weighted average price differential per MMBtu |  | $ | — |  |  | $ | 0.38 |
Natural gas futures: |  |  |  |
Contract volumes (10,000 MMBtu) |  | 210 |  |  | 1,656 |
Weighted average contract price per MMBtu |  | $ | 2.20 |  |  | $ | 3.97 |
Natural gas options: |  |  |  |
Contract volumes (10,000 MMBtu) |  | 160 |  |  | 32 |
Weighted average premium received/paid |  | $ | 0.69 |  |  | $ | 0.05 |
Bunker fuel futures: |  |  |  |
Contract volumes (metric tons "MT") |  | $ | — |  |  | $ | 46,600 |
Weighted average price per MT |  | $ | — |  |  | $ | 524.49 |
DOE diesel options: |  |  |  |
Contract volumes (1,000 Gal) |  | $ | — |  |  | $ | 1,070 |
Weighted average premium received/paid |  | $ | — |  |  | $ | 0.20 |
Fair Value of Derivative Assets and Liabilities The following tables reflect the estimated fair value position of our derivatives at March 31, 2023 and December 31, 2022:
| Unaudited Condensed Consolidated Balance Sheets Location |  | Fair Value
| March 31, 2023 |  | December 31, 2022
Asset Derivatives: |  |  |  |  |
Natural Gas Swap (undesignated hedge) | Current Assets - Other |  | 12,916 |  |  | 36,844 |
Commodity derivatives - futures and put and call options (undesignated hedges): |  |  |  |  |
Gross amount of recognized assets | Current Assets - Other |  | $ | 2,010 |  |  | $ | 1,238 |
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets | Current Assets - Other |  | (2,010) |  |  | (1,238) |
Net amount of assets presented in the Unaudited Condensed Consolidated Balance Sheets |  |  | $ | — |  |  | $ | — |
Commodity derivatives - futures (designated hedges): |  |  |  |  |
Gross amount of recognized assets | Current Assets - Other |  | $ | 1,319 |  |  | $ | — |
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets | Current Assets - Other |  | (1,319) |  |  | — |
Net amount of assets presented in the Unaudited Condensed Consolidated Balance Sheets |  |  | $ | — |  |  | $ | — |
Liability Derivatives: |  |  |  |  |
Natural Gas Swap (undesignated hedge) | Current Liabilities -Accrued Liabilities |  | (2,578) |  |  | (4,692) |
Commodity derivatives - futures and put and call options (undesignated hedges): |  |  |  |  |
Gross amount of recognized liabilities | Current Assets - Other(1) |  | $ | (16,978) |  |  | $ | (11,061) |
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets | Current Assets - Other(1) |  | 16,978 |  |  | 5,217 |
Net amount of liabilities presented in the Unaudited Condensed Consolidated Balance Sheets |  |  | $ | — |  |  | $ | (5,844) |
Commodity derivatives - futures (designated hedges): |  |  |  |  |
Gross amount of recognized liabilities | Current Assets - Other(1) |  | $ | (1,686) |  |  | $ | — |
Gross amount offset in the Unaudited Condensed Consolidated Balance Sheets | Current Assets - Other(1) |  | 1,686 |  |  | — |
Net amount of liabilities presented in the Unaudited Condensed Consolidated Balance Sheets |  |  | $ | — |  |  | $ | — |
(1)These derivative liabilities have been funded with margin deposits recorded in our Unaudited Condensed Consolidated Balance Sheets under “Current Assets - Other”. Preferred Distribution Rate Reset Election A derivative feature embedded in a contract that does not meet the definition of a derivative in its entirety must be bifurcated and accounted for separately if the economic characteristics and risks of the embedded derivative are not clearly and closely related to those of the host contract. For a period of 30 days following (i) September 1, 2022 and (ii) each subsequent anniversary thereof, the holders of our Class A Convertible Preferred Units may make a one-time election to reset the distribution amount (a “Rate Reset Election”) to a cash amount per Class A Convertible Preferred Unit equal to the amount that would be payable per quarter if a Class A Convertible Preferred Unit accrued interest on the Issue Price at an annualized rate equal to three-month LIBOR plus 750 basis points; provided, however, that such reset rate shall be equal to 10.75% if (i) such alternative rate is higher than the LIBOR-based rate and (ii) the then market price for our common units is then less than 110% of the Issue Price. The Rate Reset Election of our Class A Convertible Preferred Units represents an embedded derivative that must be bifurcated from the related host contract and recorded at fair value on our Unaudited Condensed Consolidated Balance Sheets. Corresponding changes in fair value are recognized in “Other expense” in our Unaudited Condensed Consolidated Statement of Operations. On the election date, the holders of the Class A Convertible Preferred Units elected to reset the rate to 11.24%, the sum of the three-month LIBOR of 3.74% plus 750 basis points. The fair value of this embedded derivative at the time of election was a liability of $101.8 million. As of the election date, the feature within the Class A Convertible Preferred Units that required bifurcation no longer existed and we have adjusted the carrying value of the Class A Convertible Preferred Units to include the fair value of the previously bifurcated amount at the election date. See Note 1 1 for additional information regarding our Class A Convertible Preferred Units and the Rate Reset Election. Effect on Operating Results
|  |  | Amount of Gain (Loss) Recognized in Income
| Unaudited Condensed Consolidated Statements of Operations Location |  | Three Months Ended March 31, |  |
|  | 2023 |  | 2022 |  |  |  |
Commodity derivatives - futures and call options: |  |  |  |  |  |  |  |  |
Contracts designated as hedges under accounting guidance | Onshore facilities and transportation product costs |  | $ | 967 |  |  | $ | (1,170) |  |  |  |  |
Contracts not considered hedges under accounting guidance | Onshore facilities and transportation product costs, Soda and sulfur services operating costs |  | (10,153) |  |  | 6,048 |  |  |  |  |
Total commodity derivatives |  |  | $ | (9,186) |  |  | $ | 4,878 |  |  |  |  |
Natural Gas Swap | Soda and sulfur services operating costs |  | $ | 14,085 |  |  | $ | (1,102) |  |  |  |  |
Preferred Distribution Rate Reset Election | Other expense |  | $ | — |  |  | $ | (4,258) |  |  |  |  |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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