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DERIVATIVES AND RISK MANAGEMENT ACTIVITIES
 12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES AND RISK MANAGEMENT ACTIVITIES
DERIVATIVES AND RISK MANAGEMENT ACTIVITIES
We utilize various derivative instruments to manage our exposure to interest rate risk and commodity price risk. Our risk management policies and procedures are designed to monitor interest rates, futures and swap positions and over-the-counter positions, as well as physical volumes, grades, locations and delivery schedules, to help ensure that our hedging activities address our market risks. Our risk management committee oversees our trading controls and procedures and certain aspects of commodity and trading risk management. Our risk management committee also reviews all new commodity and trading risk management strategies in accordance with our risk management policy, as approved by our board of directors.

Interest Rate Risk
We are a party to certain interest rate swap agreements to manage our exposure to changes in interest rates. During the year ended December 31, 2015, we entered into forward-starting interest rate swap agreements with an aggregate notional amount of $600.0 million. Under the terms of the swaps, we pay a fixed rate and receive a rate based on three month USD LIBOR. We entered into these swaps in order to hedge the risk of changes in the interest payments attributable to changes in the benchmark interest rate during the period from the effective date of the swap to the issuance of the forecasted debt. These swaps qualified, and we designated them, as cash flow hedges of future interest payments associated with forecasted debt issuances in 2018 and 2020. We record the effective portion of mark-to-market adjustments as a component of “Accumulated other comprehensive income” (AOCI), and the amount in AOCI will be recognized in “Interest expense, net” as the forecasted interest payments occur or if the interest payments are probable not to occur.

In 2013, in connection with the maturity of the 6.05% senior notes due March 15, 2013 and 5.875% senior notes due June 1, 2013, we terminated forward-starting interest rate swap agreements with an aggregate notional amount of $275.0 million. We paid $33.7 million in connection with the terminations, which we reclassify from “Accumulated other comprehensive loss” into “Interest expense, net” as the interest payments occur or if the interest payments are probable not to occur. During the second quarter of 2013, we determined that one forecasted interest payment was probable not to occur, and we reclassified $2.0 million from “Accumulated other comprehensive loss” to “Interest expense, net.” The termination payments are included in cash flows from financing activities on the consolidated statements of cash flows. We had no forward-starting interest rate swaps as of December 31, 2014.

As of December 31, 2015, the remaining fair value amount associated with unwound fixed-to-floating interest rate swap agreements totaled $26.3 million gain and is included in “Long-term debt” on the consolidated balance sheets. The remaining fair value amount associated with unwound forward-starting interest rate swap agreements totaled $29.3 million loss as of December 31, 2015 and is included in AOCI on the consolidated balance sheets. These amounts are amortized ratably over the remaining life of the related debt instrument into “Interest expense, net” on the consolidated statements of income.

Commodity Price Risk
We are exposed to market risks related to the volatility of crude oil and refined product prices. In order to reduce the risk of commodity price fluctuations with respect to our crude oil and refined product inventories and related firm commitments to purchase and/or sell such inventories, we utilize commodity futures and swap contracts, which qualify and we designate as fair value hedges. Derivatives that are intended to hedge our commodity price risk, but fail to qualify as fair value or cash flow hedges, are considered economic hedges, and we record associated gains and losses in net income.
The volume of commodity contracts is based on open derivative positions and represents the combined volume of our long and short open positions on an absolute basis, which totaled 8.0 million barrels and 4.7 million barrels as of December 31, 2015 and 2014, respectively.
The fair values of our derivative instruments included in our consolidated balance sheets were as follows:
 
 
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
December 31,
 
 
2015
 
2014
 
2015
 
2014
 
 
 
(Thousands of Dollars)
Derivatives Designated as
Hedging Instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
$
1,937

 
$
5,609

 
$
(23
)
 
$
—

Interest rate swaps
Other long-term assets, net
 
2,755

 
—

 
—

 
—

Interest rate swaps
Other long-term liabilities
 
—

 
—

 
(1,452
)
 
—

Total
 
 
4,692

 
5,609

 
(1,475
)
 
—

 
 
 
 
 
 
 
 
 
 
Derivatives Not Designated
as Hedging Instruments:
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
 
34,016

 
38,704

 
(24,528
)
 
(27,951
)
Commodity contracts
Accrued liabilities
 
117

 
13,081

 
(237
)
 
(17,704
)
Total
 
 
34,133

 
51,785

 
(24,765
)
 
(45,655
)
 
 
 
 
 
 
 
 
 
 
Total Derivatives
 
 
$
38,825

 
$
57,394

 
$
(26,240
)
 
$
(45,655
)

 
Certain of our derivative instruments are eligible for offset in the consolidated balance sheets and subject to master netting arrangements. Under our master netting arrangements, there is a legally enforceable right to offset amounts, and we intend to settle such amounts on a net basis. The following are the net amounts presented on the consolidated balance sheets:
 
 
December 31,
Commodity Contracts
 
2015
 
2014
 
 
(Thousands of Dollars)
Net amounts of assets presented in the consolidated balance sheets
 
$
11,402

 
$
16,362

Net amounts of liabilities presented in the consolidated balance sheets
 
$
(120
)
 
$
(4,623
)


The earnings impact of our commodity contracts, for which gains and/or losses are recognized in "Cost of product sales" on the consolidated income statements, was as follows:
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
 
(Thousands of Dollars)
Derivatives Designated as Fair Value Hedging Instruments:
 
 
 
 
 
 
Gain (loss) recognized in income on derivative
 
$
21,589

 
$
21,951

 
$
3,964

Gain (loss) recognized in income on hedged item
 
(18,047
)
 
(21,587
)
 
(6,327
)
Gain (loss) recognized in income for ineffective portion
 
3,542

 
364

 
(2,363
)
 
 
 
 
 
 
 
Derivatives Not Designated as Hedging Instruments:
 
 
 
 
 
 
Gain (loss) recognized in income on derivative
 
$
2,208

 
$
18,407

 
$
(5,323
)

The earnings impact of our interest rate swaps was as follows:
 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
 
 
(Thousands of Dollars)
Derivatives Designated as Cash Flow Hedging Instruments:
 
 
 
 
 
 
Gain (loss) recognized in other comprehensive income on derivative
    (effective portion)
 
$
1,303

 
$
—

 
$
7,213

Gain (loss) reclassified from AOCI into interest expense, net
    (effective portion) (a)
 
(9,802
)
 
(10,663
)
 
(7,570
)
(a)
As of December 31, 2015, we expect to reclassify a loss of $8.3 million to "Interest expense, net" within the next twelve months associated with unwound forward-starting interest rate swaps.