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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis Common Stock Warrants As of December 31, 2019, we had 354,350 common stock warrants outstanding. We estimated the fair value of our outstanding common stock warrants using the difference between the strike price of the warrant and the market price of our common stock, which is a Level 3 fair value measurement. As of December 31, 2019, the warrants had a weighted-average exercise price of $0.09 and a remaining term of 2.67 years. The estimated fair value of the common stock warrants was $23.16 per share as of December 31, 2019. During January and March 2020, one of our stockholders and its affiliates exercised 354,350 common stock warrants with a fair value of $3.9 million. As a result of this cashless transaction, 350,542 shares of common stock were issued. As of September 30, 2020, we had no common stock warrants outstanding. Derivative Instruments We utilize commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil, future purchases and sales of refined products, and cost of crude oil consumed in the refining process. We may utilize interest rate swaps to manage our interest rate risk. We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as Level 1 instruments are valued using quoted prices in active markets for identical assets and liabilities. These include our exchange traded futures. Level 2 instruments are valued using quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Our Level 2 instruments include OTC swaps and options. These derivatives are valued using market quotations published by commodity exchanges. Level 3 instruments are valued using significant unobservable inputs that are not readily observable in the market. The valuation of the embedded derivatives related to our J. Aron repurchase and MLC terminal obligations is based on estimates of the prices and differentials assuming settlement at the end of the reporting period. Estimates of the J. Aron and MLC settlement prices are based on observable inputs, such as Brent/WTI indices, and contractual price differentials as defined in the Supply and Offtake Agreements and Washington Refinery Intermediation Agreement. Such contractual differentials vary by location and by the type of product and range from a discount of $6.05 per barrel to a premium of $15.43 per barrel as of September 30, 2020. Contractual price differentials are considered unobservable inputs; therefore, these embedded derivatives are classified as Level 3 instruments. We do not have other commodity derivatives classified as Level 3 at September 30, 2020 or December 31, 2019. Please read Note 11—Derivatives for further information on derivatives. Financial Statement Impact Fair value amounts by hierarchy level as of September 30, 2020 and December 31, 2019 are presented gross in the tables below (in thousands):
| September 30, 2020
| Level 1 |  | Level 2 |  | Level 3 |  | Gross Fair Value |  | Effect of Counter-Party Netting |  | Net Carrying Value on Balance Sheet (1)
Assets |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | 219 |  |  | $ | 16,233 |  |  | $ | — |  |  | $ | 16,452 |  |  | $ | (13,489 | ) |  | $ | 2,963 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | (302 | ) |  | $ | (15,102 | ) |  | $ | — |  |  | $ | (15,404 | ) |  | $ | 13,489 |  |  | $ | (1,915 | )
J. Aron repurchase obligation derivative | — |  |  | — |  |  | (12,286 | ) |  | (12,286 | ) |  | — |  |  | (12,286 | )
MLC terminal obligation derivative | — |  |  | — |  |  | 6,991 |  |  | 6,991 |  |  | — |  |  | 6,991 |
Interest rate derivatives | — |  |  | (3,282 | ) |  | — |  |  | (3,282 | ) |  | — |  |  | (3,282 | )
Total | $ | (302 | ) |  | $ | (18,384 | ) |  | $ | (5,295 | ) |  | $ | (23,981 | ) |  | $ | 13,489 |  |  | $ | (10,492 | )
| December 31, 2019
| Level 1 |  | Level 2 |  | Level 3 |  | Gross Fair Value |  | Effect of Counter-Party Netting |  | Net Carrying Value on Balance Sheet (1)
Assets |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | 4,595 |  |  | $ | 2,075 |  |  | $ | — |  |  | $ | 6,670 |  |  | $ | (4,595 | ) |  | $ | 2,075 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Common stock warrants | $ | — |  |  | $ | — |  |  | $ | (8,206 | ) |  | $ | (8,206 | ) |  | $ | — |  |  | $ | (8,206 | )
Commodity derivatives | (10,129 | ) |  | — |  |  | — |  |  | (10,129 | ) |  | 4,595 |  |  | (5,534 | )
J. Aron repurchase obligation derivative | — |  |  | — |  |  | 173 |  |  | 173 |  |  | — |  |  | 173 |
MLC terminal obligation derivative | — |  |  | — |  |  | (14,717 | ) |  | (14,717 | ) |  | — |  |  | (14,717 | )
Interest rate derivatives | — |  |  | (1,427 | ) |  | — |  |  | (1,427 | ) |  | — |  |  | (1,427 | )
Total | $ | (10,129 | ) |  | $ | (1,427 | ) |  | $ | (22,750 | ) |  | $ | (34,306 | ) |  | $ | 4,595 |  |  | $ | (29,711 | )
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(1) | Does not include cash collateral of $12.5 million and $19.8 million as of September 30, 2020 and December 31, 2019, respectively, included within Prepaid and other current assets and Other long-term assets on our condensed consolidated balance sheets.
A roll forward of Level 3 derivative instruments measured at fair value on a recurring basis is as follows (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Balance, at beginning of period | $ | (66,098 | ) |  | $ | (12,720 | ) |  | $ | (22,750 | ) |  | $ | (922 | )
Settlements | 10,247 |  |  | 3,777 |  |  | (36,432 | ) |  | (4,121 | )
Acquired | — |  |  | 6,201 |  |  | — |  |  | 3,900 |
Total gains (losses) included in earnings | 50,556 |  |  | (3,463 | ) |  | 53,887 |  |  | (5,062 | )
Balance, at end of period | $ | (5,295 | ) |  | $ | (6,205 | ) |  | $ | (5,295 | ) |  | $ | (6,205 | )
The carrying value and fair value of long-term debt and other financial instruments as of September 30, 2020 and December 31, 2019 are as follows (in thousands):
| September 30, 2020
| Carrying Value |  | Fair Value
5.00% Convertible Senior Notes due 2021 (1) (3) | $ | 46,646 |  |  | $ | 44,706 |
7.75% Senior Secured Notes due 2025 (1) | 292,968 |  |  | 267,750 |
Mid Pac Term Loan (2) | 1,408 |  |  | 1,408 |
Term Loan B Facility (1) | 222,407 |  |  | 203,500 |
Retail Property Term Loan (2) | 42,231 |  |  | 42,231 |
PHL Term Loan (2) | 5,833 |  |  | 5,833 |
12.875% Senior Secured Notes due 2026 (1) | 99,020 |  |  | 109,284 |
| December 31, 2019
| Carrying Value |  | Fair Value
5.00% Convertible Senior Notes due 2021 (1) (3) | $ | 44,783 |  |  | $ | 66,477 |
7.75% Senior Secured Notes due 2025 (1) | 292,015 |  |  | 309,375 |
Mid Pac Term Loan (2) | 1,433 |  |  | 1,433 |
Term Loan B Facility (1) | 230,474 |  |  | 240,625 |
Retail Property Term Loan (2) | 43,226 |  |  | 43,226 |
Common stock warrants (2) | 8,206 |  |  | 8,206 |
_________________________________________________________
(1) | The fair value measurements of the 5.00% Convertible Senior Notes, 7.75% Senior Secured Notes, Term Loan B Facility, and 12.875% Senior Secured Notes are considered Level 2 measurements in the fair value hierarchy as discussed below.
(2) | The fair value measurements of the common stock warrants, Mid Pac Term Loan, Retail Property Term Loan, and PHL Term Loan are considered Level 3 measurements in the fair value hierarchy.
(3) | The carrying value of the 5.00% Convertible Senior Notes excludes the fair value of the equity component, which was classified as equity upon issuance.
The fair value of the 5.00% Convertible Senior Notes was determined by aggregating the fair value of the liability and equity components of the notes. The fair value of the liability component of the 5.00% Convertible Senior Notes was determined using a discounted cash flow analysis in which the projected interest and principal payments were discounted at an estimated market yield for a similar debt instrument without the conversion feature. The equity component was estimated based on the Black-Scholes model for a call option with strike price equal to the conversion price, a term matching the remaining life of the 5.00% Convertible Senior Notes, and an implied volatility based on market values of options outstanding as of September 30, 2020. The fair value of the 5.00% Convertible Senior Notes is considered a Level 2 measurement in the fair value hierarchy. The fair value of the 7.75% Senior Secured Notes, Term Loan B Facility, and 12.875% Senior Secured Notes were determined using a market approach based on quoted prices. The inputs used to measure the fair value are classified as Level 2 inputs within the fair value hierarchy because the 7.75% Senior Secured Notes, Term Loan B Facility, and 12.875% Senior Secured Notes may not be actively traded. The Retail Property Term Loan is subject to a market-based floating interest rate. The Mid Pac Term Loan and PHL Term Loan are subject to fixed interest rates of 4.375% and 2.750%, respectively. The carrying values of our Retail Property, Mid Pac, and PHL Term Loans were determined to approximate fair value as of September 30, 2020 and December 31, 2019. The fair value of all non-derivative financial instruments recorded in current assets, including cash and cash equivalents, restricted cash, and trade accounts receivable, and current liabilities, including accounts payable, approximate their carrying value due to their short-term nature.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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