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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Purchase Price Allocation of U.S. Oil The fair values of the assets acquired and liabilities assumed as a result of the Washington Acquisition were estimated as of January 11, 2019, the date of the acquisition, using valuation techniques described in notes (1) through (6) below.
|  |  | Valuation
| Fair Value |  | Technique
| (in thousands) |  |
Net working capital excluding operating leases | $ | (35,854) |  |  | (1)
Property, plant, and equipment | 412,766 |  |  | (2)
Operating lease right-of-use assets | 62,337 |  |  | (3)
Goodwill | 42,522 |  |  | (4)
Current operating lease liabilities | (21,571) |  |  | (3)
Long-term operating lease liabilities | (40,766) |  |  | (3)
Deferred tax liability | (92,103) |  |  | (5)
Other non-current liabilities | (804) |  |  | (6)
Total | $ | 326,527 |  |  |
(1)Current assets acquired and liabilities assumed were recorded at their net realizable value. (2)The fair value of personal property was estimated using the cost approach. Key assumptions in the cost approach include determining the replacement cost by evaluating recent purchases of comparable assets or published data, and adjusting replacement cost for economic and functional obsolescence, location, normal useful lives, and capacity (if applicable). The fair value of real property was estimated using the market approach. Key assumptions in the market approach include determining the asset value by evaluating recent purchases of comparable assets under similar circumstances. (3)Operating lease right-of-use assets and liabilities were recognized based on the present value of lease payments over the lease term using the incremental borrowing rate at acquisition of 9.6%. (4)The excess of the purchase price paid over the fair value of the identifiable assets acquired and liabilities assumed is allocated to goodwill. (5)The deferred tax liability was determined based on the differences between the tax bases of the assets acquired and the values of those assets recorded on our consolidated balance sheets as of the date of acquisition. (6)Other non-current liabilities are related to pension plan obligations. The underfunded status of the defined benefit plan represents the difference between the fair value of the plan’s assets and the projected benefit obligations. Goodwill At March 31, 2020, we performed a quantitative goodwill impairment test of all of our reporting units due to (i) the global economic impact of the COVID-19 pandemic and (ii) a steep decline in current and forecasted prices and demand for crude oil and refined products. As part of our quantitative impairment test, we compared the carrying value of the net assets of the reporting unit to the estimated fair value of the reporting unit. In assessing the fair value of the reporting units, we primarily utilized a market approach based on observable multiples for comparable companies within our industry. Our refining reporting units in Hawaii and Washington were fully impaired and the goodwill associated with our retail reporting unit in Washington and Idaho was partially impaired, resulting in a charge of $67.9 million in our consolidated statement of operations for the year ended December 31, 2020. The goodwill impairment expense was allocated to the Refining segment ($38.1 million) and to the Retail segment ($29.8 million). We consider the impairment of our goodwill to be a Level 3 fair value measurement. Investment in Laramie Energy We evaluate equity method investments for impairment when factors indicate that a decrease in the value of our investment has occurred and the carrying amount of our investment may not be recoverable. An impairment loss, based on the difference between the carrying value and the estimated fair value of the investment, is recognized in earnings when an impairment is deemed to be other than temporary. At March 31, 2020, we conducted an impairment evaluation of our investment in Laramie Energy because of (i) the global economic impact of the COVID-19 pandemic, (ii) an increase in the weighted-average cost of capital for energy companies, and (iii) continuing declines in natural gas prices through the first quarter of 2020. Based on our evaluation, we determined that the estimated fair value of our investment in Laramie Energy was $1.9 million, compared to a carrying value of $47.2 million at March 31, 2020. The fair value estimate was determined using a discounted cash flow analysis based on natural gas forward strip prices as of March 31, 2020 for the years 2020 and 2021 of the forecast, and a blend of forward strip pricing and third-party analyst pricing for the years 2022 through 2028. Other significant inputs used in the discounted cash flow analysis included proved and unproved reserves information, forecasts of operating expenditures, and the applicable discount rate. As part of our evaluation, we considered the likelihood that NYMEX Henry Hub prices, which declined from an average spot price of $2.29 ($/MMBtu) at December 31, 2019 to $2.03 ($/MMBtu) in the first quarter of 2020, will recover in the near term. A discount rate of 10% was used to reflect the higher cost of capital under the economic conditions as of March 31, 2020. As a result, we recorded an other-than temporary impairment charge of $45.3 million in Equity losses from Laramie Energy, LLC on our consolidated statement of operations for the year ended December 31, 2020. At September 30, 2019, we conducted an impairment evaluation of our investment in Laramie Energy because of the significant decline in natural gas prices over the second quarter of 2019 and continued deterioration in the third quarter of 2019. At September 30, 2019, we determined that the estimated fair value of our investment in Laramie Energy was $51.8 million, compared to a carrying value of $133.3 million. The fair value estimate was determined using a discounted cash flow analysis based on natural gas forward strip prices as of September 30, 2019 for two years through December 31, 2021. A blend of 2021 forward strip pricing and third-party analyst pricing was used for years after 2021 through December 31, 2028. Other significant inputs used in the discounted cash flow analysis included proved and unproved reserves information, forecasts of operating expenditures, and the applicable discount rate. As part of our evaluation, we considered the likelihood that Colorado Interstate Gas (“CIG”) prices, which declined from an average spot price of $2.48 ($/MMBtu) in the first quarter of 2019, to $1.84 ($/MMBtu) in the second quarter of 2019 and $1.77 ($/MMBtu) in the third quarter of 2019, will recover in the near term. A discount rate of 8% was used to reflect the cost of capital under the economic conditions as of September 30, 2019. As a result, we recorded an impairment charge of $81.5 million on our statement of operations for the year ended December 31, 2019. We consider the impairments of our investment in Laramie Energy to be Level 3 fair value measurements. Par West Refinery Pursuant to GAAP accounting guidelines, the Par West refinery was deemed abandoned in the fourth quarter of 2020 due to the following factors: the idling of the assets for more than an insignificant amount of time, the significant cost to restart the refinery, and a lack of a current plan or timeline to restart the refinery. Given the lack of alternative uses of the Par West refinery assets, we impaired all assets that are not expected to be used as part of our ongoing refining operations in Hawaii down to their salvage value, which is immaterial. As a result of this evaluation, we recorded an impairment charge of $17.9 million on our statement of operations for the year ended December 31, 2020. For the year ended December 31, 2021, we recorded $0.2 million of Impairment expense on our consolidated statement of operations related to this idling. 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 was 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 December 31, 2021 and 2020, we had no common stock warrants outstanding. Derivative instruments 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 from independent price reporting agencies and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. 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 and WTI indices, and unobservable inputs, such as contractual price differentials as defined in the Supply and Offtake Agreement and Washington Refinery Intermediation Agreement. Such contractual differentials vary by location and by the type of product and range from a discount of $5.64 per barrel to a premium of $56.77 per barrel as of December 31, 2021. 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 December 31, 2021 or 2020. Please read Note 14—Derivatives for further information on derivatives. Gross Environmental credit obligations Estimates of our gross environmental credit obligations are based on the amount of RINs or other environmental credits required to comply with EPA regulations and the market prices of those RINs or other environmental credits as of the end of the reporting period. The gross environmental credit obligations are classified as a Level 2 instruments as we obtain the pricing inputs for our RINs and other environmental credits from brokers based on market quotes on similar instruments. Please read Note 17—Commitments and Contingencies for further information on the EPA regulations related to greenhouse gases. Financial Statement Impact Fair value amounts by hierarchy level as of December 31, 2021 and 2020 are presented gross in the tables below (in thousands):
| December 31, 2021
| Level 1 |  | Level 2 |  | Level 3 |  | Gross Fair Value |  | Effect of Counter-party Netting |  | Net Carrying Value on Balance Sheet (1)
Assets |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | 4,283 |  |  | $ | 4,513 |  |  | $ | — |  |  | $ | 8,796 |  |  | $ | (7,536) |  |  | $ | 1,260 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | (3,964) |  |  | $ | (5,003) |  |  | $ | — |  |  | $ | (8,967) |  |  | $ | 7,536 |  |  | $ | (1,431) |
J. Aron repurchase obligation derivative | — |  |  | — |  |  | (15,151) |  |  | (15,151) |  |  | — |  |  | (15,151) |
MLC terminal obligation derivative | — |  |  | — |  |  | (22,170) |  |  | (22,170) |  |  | — |  |  | (22,170) |
Gross environmental credit obligations (2) | — |  |  | (311,014) |  |  | — |  |  | (311,014) |  |  | — |  |  | (311,014) |
Total (3) | $ | (3,964) |  |  | $ | (316,017) |  |  | $ | (37,321) |  |  | $ | (357,302) |  |  | $ | 7,536 |  |  | $ | (349,766) |
| December 31, 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 | $ | 616 |  |  | $ | 1,573 |  |  | $ | — |  |  | $ | 2,189 |  |  | $ | (843) |  |  | $ | 1,346 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | (3) |  |  | $ | (840) |  |  | $ | — |  |  | $ | (843) |  |  | $ | 843 |  |  | $ | — |
J.Aron repurchase obligation derivative | — |  |  | — |  |  | (20,797) |  |  | (20,797) |  |  | — |  |  | (20,797) |
MLC terminal obligation derivative | — |  |  | — |  |  | (10,161) |  |  | (10,161) |  |  | — |  |  | (10,161) |
Interest rate derivatives | — |  |  | (2,993) |  |  | — |  |  | (2,993) |  |  | — |  |  | (2,993) |
Gross environmental credit obligations (2) | — |  |  | (150,482) |  |  | — |  |  | (150,482) |  |  | — |  |  | (150,482) |
Total | $ | (3) |  |  | $ | (154,315) |  |  | $ | (30,958) |  |  | $ | (185,276) |  |  | $ | 843 |  |  | $ | (184,433) |
_________________________________________________________ (1)Does not include cash collateral of $15.6 million and $11.0 million as of December 31, 2021 and 2020, respectively, included within Prepaid and other current assets and Other long-term assets on our consolidated balance sheets. (2)Does not include RINs assets and other environmental credits of $120.1 million and $26.7 million presented as Inventories on our consolidated balance sheet and stated at the lower of cost and net realizable value as of December 31, 2021 and 2020, respectively. (3)The interest rate derivative was settled in February 2021, therefore, there is no asset or liability related to the interest rate derivative at December 31, 2021. Please read Note 14—Derivatives for further information. A roll forward of Level 3 derivative instruments measured at fair value on a recurring basis is as follows (in thousands):
| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Balance, beginning of period | $ | (30,958) |  |  | $ | (22,750) |  |  | $ | (922) |
Settlements | 61,247 |  |  | (31,328) |  |  | 13,263 |
Acquired | — |  |  | — |  |  | (8,654) |
Total gains (losses) included in earnings | (67,610) |  |  | 23,120 |  |  | (26,437) |
Balance, end of period | $ | (37,321) |  |  | $ | (30,958) |  |  | $ | (22,750) |
The carrying value and fair value of long-term debt and other financial instruments as of December 31, 2021 and 2020 are as follows (in thousands):
| December 31, 2021
| Carrying Value |  | Fair Value
ABL Credit Facility due 2022 | $ | — |  |  | $ | — |
7.75% Senior Secured Notes due 2025 (1) | 290,621 |  |  | 299,700 |
Term Loan B Facility due 2026 (1) | 208,903 |  |  | 214,827 |
12.875% Senior Secured Notes due 2026 (1) | 65,034 |  |  | 75,758 |
| December 31, 2020
| Carrying Value |  | Fair Value
5.00% Convertible Senior Notes due 2021 (1) (3) | $ | 47,301 |  |  | $ | 50,311 |
ABL Credit Facility due 2022 | — |  |  | — |
Retail Property Term Loan due 2024 (2) | 41,891 |  |  | 41,891 |
7.75% Senior Secured Notes due 2025 (1) | 293,289 |  |  | 289,521 |
Term Loan B Facility due 2026 (1) | 219,708 |  |  | 215,578 |
12.875% Senior Secured Notes due 2026 (1) | 99,213 |  |  | 112,901 |
Mid Pac Term Loan due 2028 (2) | 1,399 |  |  | 1,399 |
PHL Term Loan due 2030 (2) | 5,792 |  |  | 5,792 |
_________________________________________________________ (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 ABL Credit Facility, 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 the measurement date. The outstanding aggregate principal amount of the 5.00% Convertible Senior Notes were paid in full at maturity on June 15, 2021. The fair value of the 5.00% Convertible Senior Notes was 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 carrying values of our Retail Property, Mid Pac, and PHL Term Loans were determined to approximate fair value as of December 31, 2020. The Retail Property and PHL Term Loans were repaid in full on February 23, 2021 and the Mid Pac Term Loan was repaid in full on March 12, 2021. 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=123874694&loc=d3e19207-110258 + Details
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