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Fair Value Measurements | 3 Months Ended
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Mar. 31, 2024
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 Billings Acquisition The fair values of the assets acquired and liabilities assumed as a result of the Billings Acquisition were estimated as of June 1, 2023, the date of the acquisition, using valuation techniques described in notes (1) through (5) below.
|  |  | Valuation
| Fair Value |  | Technique
| (in thousands) |  |
Net working capital excluding operating leases | $ | 294,507 |  |  | (1)
Property, plant, and equipment | 259,088 |  |  | (2)
Operating lease right-of-use assets | 3,562 |  |  | (3)
Refining and logistics equity investments | 86,600 |  |  | (4)
Other long-term assets | 4,094 |  |  | (1)
Current operating lease liabilities | (2,081) |  |  | (3)
Long-term operating lease liabilities | (1,481) |  |  | (3)
Environmental liabilities | (18,869) |  |  | (5)
Total | $ | 625,420 |  |  |
(1)Current assets acquired and liabilities assumed were recorded at their net realizable value. Other long-term assets includes preliminary costs for future turnarounds that were recently incurred and were recorded at their net realizable values. (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. We consider this to be a Level 3 fair value measurement. (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 fair value of our investments in YELP and YPLC were determined using a combination of the income approach and the market approach. Under the income approach, we estimated the present value of expected future cash flows using a market participant discount rate. Under the market approach, we estimated fair value using observable multiples for comparable companies in the investments’ industries. These valuation methods require us to make significant estimates and assumptions regarding future cash flows, capital projects, commodity prices, long-term growth rates, and discount rates. We consider this to be a Level 3 fair value measurement. (5)Environmental liabilities are based on management’s best estimates of probable future costs using currently available information. We consider this to be a Level 3 fair value measurement. Equity Method Investments 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. Assets and Liabilities Measured at Fair Value on a Recurring Basis 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 obligation is based on estimates of the prices and differentials assuming settlement at the end of the reporting period. Estimates of the J. Aron settlement prices are based on observable inputs, such as Brent indices, and unobservable inputs, such as contractual price differentials as defined in the Supply and Offtake Agreement. Such contractual differentials vary by location and by the type of product, have a weighted average premium of $9.46, and range from a discount of $6.99 per barrel to a premium of $36.46 per ba rrel as of March 31, 2024. 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 March 31, 2024, or December 31, 2023. Please read Note 12—Derivatives for further information on derivatives. Gross Environmental Credit Obligations During the quarter ended December 31, 2023, we had a change in estimate in our valuation of our gross environmental credit obligations due to the settlement of all outstanding prior period environmental credit obligations. Beginning in the fourth quarter of 2023, the portion of the estimated gross environmental credit obligations satisfied by internally generated or purchased RINs or other environmental credits is recorded at the carrying value of such internally generated or purchased RINs or other environmental credits. The remainder of the estimated gross environmental credit obligation is recorded at the market price of the RINs or other environmental credits that are needed to satisfy the remaining obligation as of the end of the reporting period and classified as Level 2 instruments as we obtain the pricing inputs for the RINs and other environmental credits from brokers based on market quotes on similar instruments. Please read Note 15—Commitments and Contingencies for further information on the U.S. Environmental Protection Agency (“EPA”) regulations related to greenhouse gases. Financial Statement Impact Fair value amounts by hierarchy level as of March 31, 2024 and December 31, 2023, are presented gross in the tables below (in thousands):
| March 31, 2024
| Level 1 |  | Level 2 |  | Level 3 |  | Gross Fair Value |  | Effect of Counter-Party Netting |  | Net Carrying Value on Balance Sheet (1)
Assets |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | 160,737 |  |  | $ | 168,836 |  |  | $ | — |  |  | $ | 329,573 |  |  | $ | (313,525) |  |  | $ | 16,048 |
Interest rate derivatives | — |  |  | 23 |  |  | — |  |  | 23 |  |  | — |  |  | 23 |
Total | $ | 160,737 |  |  | $ | 168,859 |  |  | $ | — |  |  | $ | 329,596 |  |  | $ | (313,525) |  |  | $ | 16,071 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | (144,686) |  |  | $ | (190,854) |  |  | $ | — |  |  | $ | (335,540) |  |  | $ | 313,525 |  |  | $ | (22,015) |
J. Aron repurchase obligation derivative | — |  |  | — |  |  | (22,208) |  |  | (22,208) |  |  | — |  |  | (22,208) |
Gross environmental credit obligations (2) (3) | — |  |  | (13,439) |  |  | — |  |  | (13,439) |  |  | — |  |  | (13,439) |
Total liabilities | $ | (144,686) |  |  | $ | (204,293) |  |  | $ | (22,208) |  |  | $ | (371,187) |  |  | $ | 313,525 |  |  | $ | (57,662) |
| December 31, 2023
| Level 1 |  | Level 2 |  | Level 3 |  | Gross Fair Value |  | Effect of Counter-Party Netting |  | Net Carrying Value on Balance Sheet (1)
Assets |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | 100,074 |  |  | $ | 175,191 |  |  | $ | — |  |  | $ | 275,265 |  |  | $ | (231,909) |  |  | $ | 43,356 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | $ | (92,417) |  |  | $ | (140,022) |  |  | $ | — |  |  | $ | (232,439) |  |  | $ | 231,909 |  |  | $ | (530) |
J. Aron repurchase obligation derivative | — |  |  | — |  |  | (392) |  |  | (392) |  |  | — |  |  | (392) |
Interest rate derivatives | — |  |  | (821) |  |  | — |  |  | (821) |  |  | — |  |  | (821) |
Gross environmental credit obligations (2) (3) | — |  |  | (54,245) |  |  | — |  |  | (54,245) |  |  | — |  |  | (54,245) |
Total liabilities | $ | (92,417) |  |  | $ | (195,088) |  |  | $ | (392) |  |  | $ | (287,897) |  |  | $ | 231,909 |  |  | $ | (55,988) |
_________________________________________________________ (1)Does not include cash collate ral of $15.4 million and $31.3 million as of March 31, 2024 and December 31, 2023, respectively, included within Prepaid and other current assets and Other long-term assets on our condensed consolidated balance sheets. (2)Does not include RINs assets and other environmental credits of $128.7 million and $237.6 million presented as Inventories on our condensed consolidated balance sheet and stated at the lower of cost and net realizable value as of March 31, 2024 and December 31, 2023, respectively. (3)Does not include environmental liabilities of $140.3 million and $232.7 million satisfied by internally generated or purchased environmental credits and presented at the carrying value of these credits included in Other Accrued Liabilities on our condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023, respectively. A roll forward of Level 3 derivative instruments measured at fair value on a recurring basis is as follows (in thousands):
| Three Months Ended March 31, |  |
| 2024 |  | 2023 |  |  |  |
Balance, at beginning of period | $ | (392) |  |  | $ | 2,279 |  |  |  |  |
Settlements | — |  |  | (4,615) |  |  |  |  |
Total losses included in earnings (1) | (21,816) |  |  | (3,643) |  |  |  |  |
Balance, at end of period | $ | (22,208) |  |  | $ | (5,979) |  |  |  |  |
_________________________________________________________ (1)Included in Cost of revenues (excluding depreciation) on our condensed consolidated statements of operations. The carrying value and fair value of long-term debt and other financial instruments as of March 31, 2024 and December 31, 2023 are as follows (in thousands):
| March 31, 2024
| Carrying Value |  | Fair Value
ABL Credit Facility due 2028 (2) | $ | 105,000 |  |  | $ | 105,000 |
LC Facility due 2024 (2) | — |  |  | — |
Term Loan Credit Agreement due 2030 (1) | 529,920 |  |  | 546,569 |
Other long-term debt (1) | 4,589 |  |  | 4,310 |
| December 31, 2023
| Carrying Value |  | Fair Value
ABL Credit Facility due 2028 (2) | $ | 115,000 |  |  | $ | 115,000 |
LC Facility due 2024 (2) | — |  |  | — |
Term Loan Credit Agreement due 2030 (1) | 531,112 |  |  | 545,875 |
Other long-term debt (1) | 4,746 |  |  | 4,387 |
_________________________________________________________ (1)The fair value measurements of the Term Loan Credit Agreement and Other long-term debt are considered Level 2 measurements in the fair value hierarchy as discussed below. (2)The fair value measurements of the ABL Credit Facility and LC Facility are considered Level 3 measurements in the fair value hierarchy. The fair values of the Term Loan Credit Agreement and Other long-term debt were determined using a market approach based on quoted prices and the inputs used to measure the fair value are classified as Level 2 inputs within the fair value hierarchy. The carrying value of our ABL Credit Facility was determined to approximate fair value as of March 31, 2024. 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 -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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