Derivatives

6 Months Ended

Jun. 30, 2011

Derivatives [Abstract]

Derivatives

6. Derivatives

     The Company utilizes derivative instruments to minimize its price risk and volatility of cash flows associated with the purchase of crude oil and natural gas, the sale of fuel products and interest payments. The Company employs various hedging strategies, which are further discussed below. The Company does not hold or issue derivative instruments for trading purposes.

     The Company recognizes all derivative instruments at their fair values (see Note 8) as either assets or liabilities on the condensed consolidated balance sheets. Fair value includes any premiums paid or received and unrealized gains and losses. Fair value does not include any amounts receivable from or payable to counterparties, or collateral provided to counterparties. Derivative asset and liability amounts with the same counterparty are netted against each other for financial reporting purposes. The Company recorded the following derivative assets and liabilities at their fair values as of June 30, 2011 and December 31, 2010:

	Derivative Assets				Derivative Liabilities
	June 30, 2011		December 31, 2010		June 30, 2011			December 31, 2010
Derivative instruments designated as hedges:
Fuel products segment:
Crude oil swaps	$	—	$	—	$	126,090		$	134,916
Gasoline swaps		—		—		(12,815	)		(14,149	)
Diesel swaps		—		—		(75,698	)		(53,744	)
Jet fuel swaps		—		—		(173,134	)		(96,556	)
Interest rate swaps:		—		—		—			(2,681	)
Total derivative instruments designated as hedges		—		—		(135,557	)		(32,214	)
Derivative instruments not designated as hedges:
Fuel products segment:
Jet fuel crack spread collars (1)		—		—		—			20
Specialty products segment: (2)
Crude oil collars		—		—		—			—
Natural gas swaps		—		—		—			—
Crude oil swaps		—		—		—			662
Interest rate swaps: (3)		—		—		(2,328	)		(1,282	)
Total derivative instruments not designated as hedges		—		—		(2,328	)		(600	)
Total derivative instruments	$	—	$	—	$	(137,885	)	$	(32,814	)

(1)	The Company entered into jet fuel crack spread collars, which do not qualify for hedge accounting, to economically hedge its exposure to changes in the jet fuel crack spread.
(2)	The Company enters into combinations of crude oil options and swaps and natural gas swaps to economically hedge its exposures to price risk related to these commodities in its specialty products segment. The Company has not designated these derivative instruments as hedges.

(3) The Company refinanced its long-term debt in April 2011 and, as a result, all of its interest rate swaps that were designated as a cash flow hedge for the interest payments under the previous debt agreement are no longer designated as hedges.

     To the extent a derivative instrument is determined to be effective as a cash flow hedge of an exposure to changes in the fair value of a future transaction, the change in fair value of the derivative is deferred in accumulated other comprehensive loss, a component of partners’ capital in the condensed consolidated balance sheets, until the underlying transaction hedged is recognized in the unaudited condensed consolidated statements of operations. The Company accounts for certain derivatives hedging purchases of crude oil and natural gas, sales of gasoline, diesel and jet fuel and the payment of interest as cash flow hedges. The derivatives hedging sales and purchases are recorded to sales and cost of sales, respectively, in the unaudited condensed consolidated statements of operations upon recording the related hedged transaction in sales or cost of sales. The derivatives designated as hedging payments of interest are recorded in interest expense in the unaudited condensed consolidated statements of operations upon payment of interest. The Company assesses, both at inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

     For derivative instruments not designated as cash flow hedges and the portion of any cash flow hedge that is determined to be ineffective, the change in fair value of the asset or liability for the period is recorded to unrealized gain (loss) on derivative instruments in the unaudited condensed consolidated statements of operations. Upon the settlement of a derivative not designated as a cash flow hedge, the gain or loss at settlement is recorded to realized gain (loss) on derivative instruments in the unaudited condensed consolidated statements of operations.

     The Company recorded the following amounts in its condensed consolidated balance sheets, unaudited condensed consolidated statements of operations and its unaudited condensed consolidated statements of partners’ capital as of, and for the three months ended, June 30, 2011 and 2010 related to its derivative instruments that were designated as cash flow hedges:

							Amount of (Gain)
	Amount of Gain (Loss)						Loss Reclassified
	Recognized in						from Accumulated
	Accumulated Other						Other Comprehensive							Amount of Gain (Loss)
	Comprehensive Loss						Loss into							Recognized in Net
	on Derivatives						Net Loss							Loss on Derivatives
	(Effective Portion)						(Effective Portion)							(Ineffective Portion)
	Three Months Ended						Location of	Three Months Ended							Three Months Ended
	June 30,						(Gain)	June 30,						Location of Gain	June 30,
Type of Derivative	2011			2010			Loss	2011			2010			(Loss)	2011			2010
Fuel products segment:
Crude oil swaps	$	(75,758	)	$	(95,836	)	Cost of sales	$	(39,333	)	$	(18,178	)	Unrealized/ Realized	$	(1,716	)	$	(3,500	)
Gasoline swaps		1,374			25,491		Sales		12,576			5,874		Unrealized/ Realized		(878	)		(3,016	)
Diesel swaps		27,530			41,122		Sales		25,074			10,002		Unrealized/ Realized		19			(43	)
Jet fuel swaps		31,169			24,847		Sales		29,113			—		Unrealized/ Realized		(1,128	)		166
Specialty products segment:
Crude oil collars		—			—		Cost of sales		—			—		Unrealized/ Realized		—			—
Crude oil swaps		—			—		Cost of sales		—			—		Unrealized/ Realized		—			—
Natural gas swaps		—			—		Cost of sales		—			—		Unrealized/ Realized		—			—
Interest rate swaps:		1,634			(449	)	Interest expense		—			511		Unrealized/ Realized		—			—
Total	$	(14,051	)	$	(4,825	)		$	27,430		$	(1,791	)		$	(3,703	)	$	(6,393	)

     The Company recorded the following gains (losses) in its unaudited condensed consolidated statements of operations and its unaudited condensed consolidated statements of partners’ capital for the three months ended June 30, 2011 and 2010 related to its derivative instruments not designated as cash flow hedges:

	Amount of Gain (Loss)						Amount of Gain (Loss)
	Recognized in						Recognized
	Realized Loss on						in Unrealized Loss on
	Derivatives						Derivatives
	Three Months Ended						Three Months Ended
	June 30,						June 30,
Type of Derivative	2011			2010			2011			2010
Fuel products segment:
Crude oil swaps	$	—		$	(2,155	)	$	—		$	5,366
Gasoline swaps		—			3,709			—			(7,161	)
Diesel swaps		—			(325	)		—			325
Jet fuel swaps		—			—			—			—
Jet fuel collars		—			—			—			(162	)
Specialty products segment:
Crude oil collars		—			(2,188	)		—			(2,245	)
Crude oil swaps		—			(1,686	)		—			(298	)
Natural gas swaps		—			—			—			(76	)
Interest rate swaps:		(553	)		(205	)		(1,238	)		189
Total	$	(553	)	$	(2,850	)	$	(1,238	)	$	(4,062	)

     The Company recorded the following amounts in its condensed consolidated balance sheets, unaudited condensed consolidated statements of operations and its unaudited condensed consolidated statements of partners’ capital as of, and for the six months ended, June 30, 2011 and 2010 related to its derivative instruments that were designated as cash flow hedges:

							Amount of (Gain)
	Amount of Gain (Loss)						Loss Reclassified
	Recognized in						from Accumulated
	Accumulated Other						Other Comprehensive							Amount of Gain (Loss)
	Comprehensive Loss						Loss into							Recognized in Net
	on Derivatives						Net Loss							Loss on Derivatives
	(Effective Portion)						(Effective Portion)							(Ineffective Portion)
	Six Months Ended						Location of	Six Months Ended							Six Months Ended
	June 30,						(Gain)	June 30,						Location of Gain	June 30,
Type of Derivative	2011			2010			Loss	2011			2010			(Loss)	2011			2010
Fuel products segment:
Crude oil swaps	$	61,188		$	(79,355	)	Cost of sales	$	(58,434	)	$	(35,686	)	Unrealized/ Realized	$	(497	)	$	(9,973	)
Gasoline swaps		(17,736	)		19,650		Sales		18,815			11,058		Unrealized/ Realized		(1,339	)		(4,551	)
Diesel swaps		(68,792	)		32,556		Sales		43,187			15,810		Unrealized/ Realized		(538	)		(1,224	)
Jet fuel swaps		(119,414	)		17,623		Sales		42,674			—		Unrealized/ Realized		(1,604	)		166
Specialty products segment:
Crude oil collars		—			—		Cost of sales		—			—		Unrealized/ Realized		—			—
Crude oil swaps		—			—		Cost of sales		—			—		Unrealized/ Realized		—			—
Natural gas swaps		—			—		Cost of sales		—			—		Unrealized/ Realized		—			—
Interest rate swaps:		1,979			(1,398	)	Interest expense		702			1,297		Unrealized/ Realized		—			—
Total	$	(142,775	)	$	(10,924	)		$	46,944		$	(7,521	)		$	(3,978	)	$	(15,582	)

     The Company recorded the following gains (losses) in its unaudited condensed consolidated statements of operations and its unaudited condensed consolidated statements of partners’ capital for the six months ended June 30, 2011 and 2010 related to its derivative instruments not designated as cash flow hedges:

	Amount of Gain (Loss)						Amount of Gain (Loss)
	Recognized in						Recognized
	Realized Loss on						in Unrealized Loss
	Derivatives						on Derivatives
	Six Months Ended						Six Months Ended
	June 30,						June 30,
Type of Derivative	2011			2010			2011			2010
Fuel products segment:
Crude oil swaps	$	—		$	(4,390	)	$	—		$	6,938
Gasoline swaps		—			7,103			—			(9,203	)
Diesel swaps		—			(650	)		—			650
Jet fuel swaps		—			—			—			—
Jet fuel collars		(562	)		—			543			(288	)
Specialty products segment:
Crude oil collars		—			(2,959	)		—			(1,268	)
Crude oil swaps		932			(1,662	)		(662	)		(247	)
Natural gas swaps		—			(35	)		—			(76	)
Interest rate swaps:		(752	)		(405	)		(1,046	)		450
Total	$	(382	)	$	(2,998	)	$	(1,165	)	$	(3,044	)

     The cash flow impact of the Company’s derivative activities is classified as a change in derivative activity in the operating activities section in the unaudited condensed consolidated statements of cash flows.

     The Company is exposed to credit risk in the event of nonperformance by its counterparties on these derivative transactions. The Company does not expect nonperformance on any derivative instruments, however, no assurances can be provided. The Company’s credit exposure related to these derivative instruments is represented by the fair value of contracts reported as derivative assets. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings. The Company executes all of its derivative instruments with large financial institutions that have ratings of at least A2 and A by Moody’s and S&P, respectively. In the event of default, the Company would potentially be subject to losses on derivative instruments with mark to market gains. The Company requires collateral from its counterparties when the fair value of the derivatives exceeds agreed upon thresholds in its contracts with these counterparties. No such collateral was held by the Company as of June 30, 2011 or December 31, 2010. The Company’s contracts with these counterparties allow for netting of derivative instrument positions executed under each contract. Collateral received from counterparties is reported in other current liabilities, and collateral held by counterparties is reported in deposits, on the Company’s condensed consolidated balance sheets and not netted against derivative assets or liabilities. As of June 30, 2011, the Company had provided its counterparties with $11,900 cash collateral above the $25,000 letter of credit provided to one counterparty to support crack spread hedging. As of December 31, 2010, the Company had provided its counterparties with no cash collateral or letters of credit above the $50,000 prefunded letter of credit then in effect and provided to one counterparty to support crack spread hedging. For financial reporting purposes, the Company does not offset the collateral provided to a counterparty against the fair value of its obligation to that counterparty. Any outstanding collateral is released to the Company upon settlement of the related derivative instrument liability.

     Certain of the Company’s outstanding derivative instruments are subject to credit support agreements with the applicable counterparties which contain provisions setting certain credit thresholds above which the Company may be required to post agreed-upon collateral, such as cash or letters of credit, with the counterparty to the extent that the Company’s mark-to-market net liability, if any, on all outstanding derivatives exceeds the credit threshold amount per such credit support agreement. In certain cases, the Company’s credit threshold is dependent upon the Company’s maintenance of certain corporate credit ratings with Moody’s and S&P. In the event that the Company’s corporate credit rating was lowered below its current level by either Moody’s or S&P, such counterparties would have the right to reduce the applicable threshold to zero and demand full collateralization of the Company’s net liability position on outstanding derivative instruments. As of June 30, 2011 and December 31, 2010, there was a net liability of $753 and $388, respectively, associated with the Company’s outstanding derivative instruments subject to such requirements. In addition, the majority of the credit support agreements covering the Company’s outstanding derivative instruments also contain a general provision stating that if the Company experiences a material adverse change in its business, in the reasonable discretion of the counterparty, the Company’s credit threshold could be lowered by such counterparty. The Company does not expect that it will experience a material adverse change in its business.

     The effective portion of the hedges classified in accumulated other comprehensive loss is $118,598 as of June 30, 2011, and absent a change in the fair market value of the underlying transactions, will be reclassified to earnings by December 31, 2013 with balances being recognized as follows:

	Accumulated Other
	Comprehensive
Year	Loss
2011	$	35,586
2012		80,630
2013		2,382
Total	$	118,598

     Based on fair values as of June 30, 2011, the Company expects to reclassify $79,666 of net losses on derivative instruments from accumulated other comprehensive loss to earnings during the next twelve months due to actual crude oil purchases, gasoline and diesel and jet fuel sales. However, the amounts actually realized will be dependent on the fair values as of the date of settlements.

Crude Oil Swap and Collar Contracts — Specialty Products Segment

     The Company is exposed to fluctuations in the price of crude oil, its principal raw material. The Company utilizes combinations of options and swaps to manage crude oil price risk and volatility of cash flows in its specialty products segment. These derivatives may be designated as cash flow hedges of the future purchase of crude oil if they meet the hedge criteria. The Company’s general policy is to enter into crude oil derivative contracts that mitigate the Company’s exposure to price risk associated with crude oil purchases related to specialty products production (for up to 70% of expected purchases). While the Company’s policy generally requires that these positions be short term in nature and expire within three to nine months from execution, the Company may execute derivative contracts for up to two years forward, if a change in the risks supports lengthening the Company’s position. As of June 30, 2011, the Company did not have any crude oil derivatives related to future crude oil purchases in its specialty products segment.

     At December 31, 2010, the Company had the following crude oil derivatives related to crude oil purchases in its specialty products segment, none of which were designated as hedges.

					Average
	Barrels				Swap
Crude Oil Swap Contracts by Expiration Dates	Purchased		BPD		($/Bbl)
February 2011		33,600		1,200	$	83.10
March 2011		37,200		1,200		83.55
Totals		70,800
Average price					$	83.34

Crude Oil Swap Contracts — Fuel Products Segment

     The Company is exposed to fluctuations in the price of crude oil, its principal raw material. The Company utilizes swap contracts to manage crude oil price risk and volatility of cash flows in its fuel products segment. The Company’s policy is generally to enter into crude oil swap contracts for a period no greater than five years forward and for no more than 75% of crude oil purchases used in fuels production. At June 30, 2011, the Company had the following derivatives related to crude oil purchases in its fuel products segment, all of which are designated as hedges.

					Average
	Barrels				Swap
Crude Oil Swap Contracts by Expiration Dates	Purchased		BPD		($/Bbl)
Third Quarter 2011		1,610,000		17,500	$	77.38
Fourth Quarter 2011		1,334,000		14,500		77.71
Calendar Year 2012		5,626,000		15,372		87.43
Calendar Year 2013		2,864,000		7,847		100.71
Totals		11,434,000
Average price					$	88.21

     At December 31, 2010, the Company had the following derivatives related to crude oil purchases in its fuel products segment, all of which are designated as hedges.

					Average
	Barrels				Swap
Crude Oil Swap Contracts by Expiration Dates	Purchased		BPD		($/Bbl)
First Quarter 2011		1,215,000		13,500	$	75.32
Second Quarter 2011		1,729,000		19,000		76.62
Third Quarter 2011		1,610,000		17,500		77.38
Fourth Quarter 2011		1,334,000		14,500		77.71
Calendar Year 2012		5,535,000		15,123		86.30
Totals		11,423,000
Average price					$	81.41

Fuel Products Swap Contracts

     The Company is exposed to fluctuations in the prices of gasoline, diesel and jet fuel. The Company utilizes swap contracts to manage diesel, gasoline and jet fuel price risk and volatility of cash flows in its fuel products segment. The Company’s policy is generally to enter into diesel, jet fuel and gasoline swap contracts for a period no longer than five years forward and for no more than 75% of forecasted fuel sales.

Diesel Swap Contracts

     At June 30, 2011, the Company had the following derivatives related to diesel and jet fuel sales in its fuel products segment, all of which are designated as hedges.

					Average
					Swap
Diesel Swap Contracts by Expiration Dates	Barrels Sold		BPD		($/Bbl)
Third Quarter 2011		552,000		6,000	$	91.74
Fourth Quarter 2011		552,000		6,000		91.74
Calendar Year 2012		1,651,000		4,511		103.79
Calendar Year 2013		824,000		2,258		125.69
Totals		3,579,000
Average price					$	105.12

     At December 31, 2010, the Company had the following derivatives related to diesel and jet fuel sales in its fuel products segment, all of which are designated as hedges.

					Average
					Swap
Diesel Swap Contracts by Expiration Dates	Barrels Sold		BPD		($/Bbl)
First Quarter 2011		630,000		7,000	$	89.57
Second Quarter 2011		637,000		7,000		89.57
Third Quarter 2011		552,000		6,000		91.74
Fourth Quarter 2011		552,000		6,000		91.74
Calendar Year 2012		1,560,000		4,262		99.27
Totals		3,931,000
Average price					$	94.03

Jet Fuel Swap Contracts

     At June 30, 2011, the Company had the following derivatives related to diesel and jet fuel sales in its fuel products segment, all of which are designated as hedges.

					Average
					Swap
Jet Fuel Swap Contracts by Expiration Dates	Barrels Sold		BPD		($/Bbl)
Third Quarter 2011		920,000		10,000	$	89.86
Fourth Quarter 2011		644,000		7,000		89.21
Calendar Year 2012		3,838,500		10,488		99.78
Calendar Year 2013		1,860,000		5,096		125.50
Totals		7,262,500
Average price					$	104.17

     At December 31, 2010, the Company had the following derivatives related to diesel and jet fuel sales in its fuel products segment, all of which are designated as hedges.

					Average
					Swap
Jet Fuel Swap Contracts by Expiration Dates	Barrels Sold		BPD		($/Bbl)
First Quarter 2011		405,000		4,500	$	86.12
Second Quarter 2011		819,000		9,000		89.58
Third Quarter 2011		920,000		10,000		89.86
Fourth Quarter 2011		644,000		7,000		89.21
Calendar Year 2012		3,838,500		10,488		99.78
Totals		6,626,500
Average price					$	95.28

Gasoline Swap Contracts

     At June 30, 2011, the Company had the following derivatives related to gasoline sales in its fuel products segment, all of which are designated as hedges.

					Average
					Swap
Gasoline Swap Contracts by Expiration Dates	Barrels Sold		BPD		($/Bbl)
Third Quarter 2011		138,000		1,500	$	85.50
Fourth Quarter 2011		138,000		1,500		85.50
Calendar Year 2012		136,500		373		89.04
Calendar Year 2013		180,000		493		110.38
Totals		592,500
Average price					$	93.87

     At December 31, 2010, the Company had the following derivatives related to gasoline sales in its fuel products segment, all of which are designated as hedges.

					Average
					Swap
Gasoline Swap Contracts by Expiration Dates	Barrels Sold		BPD		($/Bbl)
First Quarter 2011		180,000		2,000	$	81.84
Second Quarter 2011		273,000		3,000		82.66
Third Quarter 2011		138,000		1,500		85.50
Fourth Quarter 2011		138,000		1,500		85.50
Calendar Year 2012		136,500		373		89.04
Totals		865,500
Average price					$	84.40

Jet Fuel Put Spread Contracts

     At June 30, 2011, the Company had the following jet fuel put options related to jet fuel crack spreads in its fuel products segment, none of which are designated as hedges.

					Average		Average
					Sold Put		Bought Put
Jet Fuel Put Option Crack Spread Contracts by Expiration Dates	Barrels		BPD		($/Bbl)		($/Bbl)
Fourth Quarter 2011		184,000		2,000	$	4.75	$	7.00
Totals		184,000
Average price					$	4.75	$	7.00

     At December 31, 2010, the Company had the following jet fuel put options related to jet fuel crack spreads in its fuel products segment, none of which are designated as hedges.

					Average		Average
					Sold Put		Bought Put
Jet Fuel Put Option Crack Spread Contracts by Expiration Dates	Barrels		BPD		($/Bbl)		($/Bbl)
First Quarter 2011		630,000		7,000	$	4.00	$	6.00
Fourth Quarter 2011		184,000		2,000		4.75		7.00
Totals		814,000
Average price					$	4.17	$	6.23

Natural Gas Swap Contracts

     Natural gas purchases comprise a significant component of the Company’s cost of sales; therefore, changes in the price of natural gas also significantly affect its profitability and cash flows. The Company utilizes swap contracts to manage natural gas price risk and volatility of cash flows. The Company’s policy is generally to enter into natural gas derivative contracts to hedge no more than 75% of its upcoming fall and winter months’ anticipated natural gas requirement for a period no greater than three years forward. At June 30, 2011 and December 31, 2010, the Company had no derivatives outstanding related to natural gas purchases.

Interest Rate Swap Contracts

     The Company’s profitability and cash flows are affected by changes in interest rates, specifically LIBOR and prime rates. The primary purpose of the Company’s interest rate risk management activities is to hedge its exposure to changes in interest rates. Historically, the Company’s policy has been to enter into interest rate swap agreements to hedge up to 75% of its interest rate risk related to variable rate debt. With the completion of its 2019 Notes offering, the Company does not expect to enter into additional hedges to fix its interest rates.

     During 2010, the Company entered into forward swap contracts to manage interest rate risk related to a portion of its then existing variable rate senior secured first lien term loan. The Company hedged the future interest payments related to $100,000 of the total outstanding term loan indebtedness for the period from February 15, 2011 to February 15, 2012 pursuant to these forward swap contracts. These swap contracts were designated as cash flow hedges of the future payments of interest with three-month LIBOR fixed at an average rate during the hedge period of 2.03%. Due to the repayment of the variable rate senior secured first lien term loan in April 2011 with proceeds from the issuance of the 2019 Notes, the interest rate swap contract was discontinued as a cash flow hedge for the future payment of interest. For the three and six months ended June 30, 2011, the Company reclassified approximately $1,435 into unrealized loss on derivative instruments in the unaudited condensed consolidated statements of operations.

     In 2009, the Company hedged the future interest payments related to $200,000 of its total outstanding term loan indebtedness for the period from February 15, 2010 to February 15, 2011. This swap contract was designated as a cash flow hedge of the future payment of interest with three-month LIBOR fixed at an average rate during the hedge period of 0.94%. The cash flow hedge settled during the first quarter of 2011.

     In 2008, the Company entered into a forward swap contract to manage interest rate risk related to a portion of its then existing variable rate senior secured first lien term loan which closed January 3, 2008. The Company hedged the future interest payments related to $50,000 of the total outstanding term loan indebtedness in 2010, pursuant to this forward swap contract. This swap contract was designated as a cash flow hedge of the future payment of interest with three-month LIBOR fixed at 3.66% per annum in 2010 and the first quarter of 2011. The cash flow hedge settled during the first quarter of 2011.

     In 2006, the Company entered into a forward swap contract to manage interest rate risk related to a portion of its then existing variable rate senior secured first lien term loan. Due to the repayment of $19,000 of the outstanding balance of the Company’s then existing term loan facility in August 2007 and subsequent refinancing of the remaining term loan balance, this swap contract was not designated as a cash flow hedge of the future payment of interest. The entire change in the fair value of this interest rate swap is recorded to unrealized loss on derivative instruments in the unaudited condensed consolidated statements of operations. In the first quarter of 2008, the Company fixed its unrealized loss on this interest rate swap derivative instrument by entering into an offsetting interest rate swap expiring December 2012, which is not designated as a cash flow hedge.