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Derivatives | 9 Months Ended
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Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Note 10—Derivatives Commodity Derivatives We utilize crude oil commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil and future sales of refined products. The derivative contracts that we execute to manage our price risk include exchange traded futures, options and over-the-counter (“OTC”) swaps. Our futures, options and OTC swaps are marked-to-market and changes in the fair value of these contracts are recognized within Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. We are obligated to repurchase the crude oil and refined products from J. Aron at the termination of the Supply and Offtake Agreements. We have determined that this obligation contains an embedded derivative, similar to forward purchase contracts of crude oil and refined products. As such, we have accounted for this embedded derivative at fair value with changes in the fair value recorded in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. We are also required under the Supply and Offtake Agreements to hedge the time spread between the period of crude oil cargo pricing and the month of delivery. We utilize OTC swaps to accomplish this. We have entered into forward purchase contracts for crude oil and forward sales contracts of refined products. We elect the normal purchases normal sales ("NPNS") exception for all forward contracts that meet the definition of a derivative and are not expected to net settle. Any gains and losses with respect to these forward contracts designated as NPNS are not reflected in earnings until the delivery occurs. We elect to offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement. Our condensed consolidated balance sheets present derivative assets and liabilities on a net basis. Please read Note 11—Fair Value Measurements for the gross fair value and net carrying value of our derivative instruments. Our cash margin that is required as collateral deposits cannot be offset against the fair value of open contracts except in the event of default. At September 30, 2016, our open commodity derivative contracts represent:
• | futures and OTC swaps sales of 634 thousand barrels that economically hedge our crude oil and refined products inventory;
• | futures sales of 85 thousand barrels that economically hedge our physical inventory for our Texadian segment; and
• | option collars of 52 thousand barrels per month through December 2017 and option collars and OTC swaps of 20 thousand barrels per month through December 2018 that economically hedge our internally consumed fuel.
Interest Rate Derivatives We are exposed to interest rate volatility in our outstanding debt and in the Supply and Offtake Agreements. We utilize interest rate swaps to manage our interest rate risk. As of September 30, 2016, we had locked in an average fixed rate of 1.1% in exchange for a floating interest rate indexed to the three-month LIBOR on an aggregate notional amount of $200 million. The interest rate swaps mature in February 2019 and March 2021. On June 21, 2016 and June 27, 2016, we completed the issuance and sale of an aggregate of $115 million principal amount of the 5.00% Convertible Senior Notes. Please read Note 9—Debt for further discussion. Upon redemption of our 5.00% Convertible Senior Notes on or after June 20, 2019 at our election, we are obligated to pay a make-whole premium equal to the present value of the remaining scheduled payments of interest on the 5.00% Convertible Senior Notes to be redeemed from the relevant redemption date to the maturity date of June 15, 2021. We have determined that the redemption option and the related make-whole premium represent an embedded derivative that is not clearly and closely related to the 5.00% Convertible Senior Notes. As such, we have accounted for this embedded derivative at fair value with changes in the fair value recorded in Interest expense and financing costs, net on our condensed consolidated statements of operations. As of September 30, 2016, this embedded derivative was deemed to have a de minimis fair value. The following table provides information on the fair value amounts (in thousands) of these derivatives as of September 30, 2016 and December 31, 2015 and their placement within our condensed consolidated balance sheets.
| Balance Sheet Location |  | September 30, 2016 |  | December 31, 2015
|  |  | Asset (Liability)
Commodity derivatives (1) | Prepaid and other current assets |  | $ | — |  |  | $ | 4,577 |
Commodity derivatives (1) | Other long-term assets |  | 1,997 |  |  | — |
Commodity derivatives | Other accrued liabilities |  | (5,149 | ) |  | (9,534 | )
Commodity derivatives | Other liabilities |  | (430 | ) |  | (4,925 | )
J. Aron repurchase obligation derivative | Obligations under inventory financing agreements |  | (10,546 | ) |  | 9,810 |
Interest rate derivatives | Other long-term assets |  | 151 |  |  | — |
Interest rate derivatives | Other accrued liabilities |  | (430 | ) |  | — |
Interest rate derivatives | Other liabilities |  | (216 | ) |  | — |
_________________________________________________________
(1) | Does not include cash collateral of $6.0 million and $20.9 million recorded in Prepaid and other current assets and $7.0 million and $7.0 million in Other long-term assets as of September 30, 2016 and December 31, 2015, respectively.
The following table summarizes the pre-tax gains (losses) recognized in Net income (loss) on our condensed consolidated statements of operations resulting from changes in fair value of derivative instruments not designated as hedges charged directly to earnings (in thousands):
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
| Statement of Operations Location |  | 2016 |  | 2015 |  | 2016 |  | 2015
Commodity derivatives | Cost of revenues (excluding depreciation) |  | $ | (3,028 | ) |  | $ | 10,940 |  |  | $ | (3,117 | ) |  | $ | 13,512 |
J. Aron repurchase obligation derivative | Cost of revenues (excluding depreciation) |  | (8,300 | ) |  | — |  |  | (20,356 | ) |  | — |
Interest rate derivatives | Interest expense |  | 1,204 |  |  | — |  |  | (1,098 | ) |  | — |

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