v3.20.1

Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments Interest Rate Derivatives In first quarter 2020, we entered into $100.0 million of treasury lock agreements to protect against the risk of variability on a portion of a debt issuance we anticipate to occur by early 2021. The fair value of these interest rate derivative agreements at March 31, 2020 was recorded as a current liability of $11.9 million, with the offset recorded to other comprehensive income. We account for these agreements as cash flow hedges. Commodity Derivatives Our open futures contracts at March 31, 2020 were as follows:
Type of Contract/Accounting Methodology |  | Product Represented by the Contract and Associated Barrels |  | Maturity Dates
Futures - Economic Hedges |  | 2.3 million barrels of refined products and crude oil |  | Between April 2020 and November 2022
Futures - Economic Hedges |  | 0.1 million barrels of gas liquids |  | April 2020
Commodity Derivatives Contracts and Deposits Offsets At March 31, 2020, we had received margin deposits of $50.3 million for our futures contracts with our counterparties, which were recorded as current liabilities under commodity derivatives deposits on our consolidated balance sheets. At December 31, 2019, we had made margin deposits of $27.4 million for our futures contracts with our counterparties, which were recorded as current assets under commodity derivatives deposits on our consolidated balance sheets. We have the right to offset the combined fair values of our open futures contracts against our margin deposits under a master netting arrangement for each counterparty; however, we have elected to present the combined fair values of our open futures contracts separately from the related margin deposits on our consolidated balance sheets. Additionally, we have the right to offset the fair values of our futures contracts together for each counterparty, which we have elected to do, and we report the combined net balances on our consolidated balance sheets. A schedule of the derivative amounts we have offset and the deposit amounts we could offset under a master netting arrangement are provided below as of December 31, 2019 and March 31, 2020 (in thousands):
Description |  | Gross Amounts of Recognized Assets (Liabilities) |  | Gross Amounts of Assets (Liabilities) Offset in the Consolidated Balance Sheets |  | Net Amounts of Assets (Liabilities) Presented in the Consolidated Balance Sheets |  | Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets |  | Net Asset Amount(1)
As of 12/31/2019 |  | $ | (11,033 | ) |  | $ | 811 |  |  | $ | (10,222 | ) |  | $ | 27,415 |  |  | $ | 17,193 |
As of 3/31/2020 |  | $ | 66,007 |  |  | $ | (1,054 | ) |  | $ | 64,953 |  |  | $ | (50,345 | ) |  | $ | 14,608 |
(1) | Amount represents the maximum loss we would incur if all of our counterparties failed to perform on their derivative contracts.
Basis Derivative Agreement During 2019, we entered into a basis derivative agreement with a joint venture co-owner’s affiliate, and, contemporaneously, that affiliate entered into an intrastate transportation services agreement with the joint venture. Settlements under the basis derivative agreement are determined based on the basis differential of crude oil prices at different market locations and a notional volume of 30,000 barrels per day. As a result, we account for this agreement as a derivative. The agreement will expire in early 2022. We recognize the changes in fair value of this agreement based on forward price curves for crude oil in West Texas and the Houston Gulf Coast in other operating income (expense) in our consolidated statements of income. The liability for this agreement at December 31, 2019 and March 31, 2020 was $17.3 million and $18.5 million, respectively. Impact of Derivatives on Our Financial Statements Comprehensive Income The changes in derivative activity included in AOCL for the three months ended March 31, 2019 and 2020 were as follows (in thousands):
| Three Months Ended
| March 31,
Derivative Losses Included in AOCL | 2019 |  | 2020
Beginning balance | $ | (26,480 | ) |  | $ | (48,960 | )
Net loss on cash flow hedges | (4,376 | ) |  | (11,914 | )
Reclassification of net loss on cash flow hedges to income | 627 |  |  | 809 |
Ending balance | $ | (30,229 | ) |  | $ | (60,065 | )
The following is a summary of the effect on our consolidated statements of income for the three months ended March 31, 2019 and 2020 of derivatives that were designated as cash flow hedges (in thousands):
|  | Interest Rate Contracts
|  | Amount of Loss Recognized in AOCL on Derivatives |  | Location of Loss Reclassified from AOCL into Income |  | Amount of Loss Reclassified from AOCL into Income
Three Months Ended March 31, 2019 |  | $ | (4,376 | ) |  | Interest expense |  | $ | (627 | )
Three Months Ended March 31, 2020 |  | $ | (11,914 | ) |  | Interest expense |  | $ | (809 | )
As of March 31, 2020, the net loss estimated to be classified to interest expense over the next twelve months from AOCL is approximately $3.2 million. This amount relates to the amortization of losses on interest rate contracts over the life of the related debt instruments. The following table provides a summary of the effect on our consolidated statements of income for the three months ended March 31, 2019 and 2020 of derivatives that were not designated as hedging instruments (in thousands):
|  |  |  | Amount of Gain (Loss) Recognized on Derivatives
|  |  |  | Three Months Ended |
|  | Location of Gain (Loss) Recognized on Derivatives |  | March 31, |
Derivative Instrument |  |  | 2019 |  | 2020 |
Futures contracts |  | Product sales revenue |  | $ | (54,511 | ) |  | $ | 123,769 |  |
Futures contracts |  | Cost of product sales |  | 2,273 |  |  | (3,927 | ) |
Basis derivative agreement |  | Other operating income (expense) |  | — |  |  | (2,899 | ) |
|  | Total |  | $ | (52,238 | ) |  | $ | 116,943 |  |
The impact of the derivatives in the above table was reflected as cash from operations on our consolidated statements of cash flows. Balance Sheets The following table provides a summary of the fair value of derivatives, which are presented on a net basis in our consolidated balance sheets, that were designated as hedging instruments as of March 31, 2020 (in thousands). There were no balances outstanding at December 31, 2019.
|  | March 31, 2020
|  | Asset Derivatives |  | Liability Derivatives
Derivative Instrument |  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Interest rate contracts |  | Other current assets |  | $ | — |  |  | Other current liabilities |  | $ | 11,914 |
The following tables provide a summary of the fair value of derivatives, which are presented on a net basis in our consolidated balance sheets, that were not designated as hedging instruments as of December 31, 2019 and March 31, 2020 (in thousands):
|  | December 31, 2019
|  | Asset Derivatives |  | Liability Derivatives
Derivative Instrument |  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Futures contracts |  | Commodity derivatives contracts, net |  | $ | 811 |  |  | Commodity derivatives contracts, net |  | $ | 11,033 |
Basis derivative agreement |  | Other current assets |  | — |  |  | Other current liabilities |  | 8,457 |
Basis derivative agreement |  | Other noncurrent assets |  | — |  |  | Other noncurrent liabilities |  | 8,847 |
|  | Total |  | $ | 811 |  |  | Total |  | $ | 28,337 |
|  | March 31, 2020
|  | Asset Derivatives |  | Liability Derivatives
Derivative Instrument |  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Futures contracts |  | Commodity derivatives contracts, net |  | $ | 62,845 |  |  | Commodity derivatives contracts, net |  | $ | 1,046 |
Futures contracts |  | Other noncurrent assets |  | 3,162 |  |  | Other noncurrent liabilities |  | 8 |
Basis derivative agreement |  | Other current assets |  | — |  |  | Other current liabilities |  | 9,791 |
Basis derivative agreement |  | Other noncurrent assets |  | — |  |  | Other noncurrent liabilities |  | 8,685 |
|  | Total |  | $ | 66,007 |  |  | Total |  | $ | 19,530 |

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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 + Details
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