Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value of Financial Instruments and Fair Value Measurements [Abstract]

Fair Value Measurements

8. Fair Value Measurements

     The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. In determining fair value, the Company uses various valuation techniques and prioritizes the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the instrument. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management judgment. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.

     As of June 30, 2011, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These included the Company’s derivative instruments related to crude oil, gasoline, diesel, jet fuel and interest rates and investments associated with the Company’s non-contributory defined benefit plan (“Pension Plan”).

     The Company’s derivative instruments consist of over-the-counter (“OTC”) contracts, which are not traded on a public exchange. Substantially all of the Company’s derivative instruments are with counterparties that have long-term credit ratings of at least A2 and A by Moody’s and S&P, respectively. To estimate the fair values of the Company’s derivative instruments, the Company uses the market approach. Under this approach, the fair values of the Company’s derivative instruments for crude oil, gasoline, diesel, jet fuel and interest rates are determined primarily based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Generally, the Company obtains this data through surveying its counterparties and performing various analytical tests to validate the data. The Company determines the fair value of its crude oil option contracts utilizing a standard option pricing model based on inputs that can be derived from information available in publicly quoted markets, or are quoted by counterparties to these contracts. In situations where the Company obtains inputs via quotes from its counterparties, it verifies the reasonableness of these quotes via similar quotes from another counterparty as of each date for which financial statements are prepared. The Company also includes an adjustment for non-performance risk in the recognized measure of fair value of all of the Company’s derivative instruments. The adjustment reflects the full credit default spread (“CDS”) applied to a net exposure by counterparty. When the Company is in a net asset position, it uses its counterparty’s CDS, or a peer group’s estimated CDS when a CDS for the counterparty is not available. The Company uses its own peer group’s estimated CDS when it is in a net liability position. As a result of applying the applicable CDS, at June 30, 2011 and December 31, 2010, the Company’s liability was reduced by approximately $2,025 and $687, respectively. Based on the use of various unobservable inputs, principally non-performance risk and unobservable inputs in forward years for gasoline, jet fuel and diesel, the Company has categorized these derivative instruments as Level 3. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative instruments it holds.

     The Company’s investments associated with its Pension Plan primarily consist of (i) mutual funds that are publicly traded and (ii) a commingled fund. The mutual funds are publicly traded and market prices of the mutual funds are readily available; thus, these investments are categorized as Level 1. The commingled fund is categorized as Level 2 because inputs used in its valuation are not quoted prices in active markets that are indirectly observable and is valued at the net asset value of shares held by the Pension Plan at quarter end.

     The Company’s assets and liabilities measured at fair value at June 30, 2011 were as follows:

	Fair Value Measurements
	Level 1		Level 2 (a)		Level 3			Total
Assets:
Cash and cash equivalents	$	55	$	—	$	—		$	55
Crude oil swaps		—		—		126,090			126,090
Gasoline swaps		—		—		—			—
Diesel swaps		—		—		—			—
Jet fuel swaps		—		—		—			—
Crude oil options		—		—		—			—
Jet fuel options		—		—		—			—
Pension plan investments		15,018		2,095		—			17,113
Total assets at fair value	$	15,073	$	2,095	$	126,090		$	143,258
Liabilities:
Crude oil swaps	$	—	$	—	$	—		$	—
Gasoline swaps		—		—		(12,815	)		(12,815	)
Diesel swaps		—		—		(75,698	)		(75,698	)
Jet fuel swaps		—		—		(173,134	)		(173,134	)
Crude oil options		—		—		—			—
Jet fuel options		—		—		—			—
Interest rate swaps		—		—		(2,328	)		(2,328	)
Pension plan investments		—		—		—			—
Total liabilities at fair value	$	—	$	—	$	(263,975	)	$	(263,975	)

(a) Transferred from Level 1 to Level 2 in the first quarter of 2011 because of lack of observable market data in the underlying investments.

     The Company’s financial assets and liabilities measured at fair value at December 31, 2010 were as follows:

	Fair Value Measurements
	Level 1		Level 2		Level 3			Total
Assets:
Cash and cash equivalents	$	37	$	—	$	—		$	37
Crude oil swaps		—		—		135,578			135,578
Gasoline swaps		—		—		—			—
Diesel swaps		—		—		—			—
Jet fuel swaps		—		—		—			—
Crude oil options		—		—		—			—
Jet fuel options		—		—		20			20
Pension plan investments		16,039		—		—			16,039
Total assets at fair value	$	16,076	$	—	$	135,598		$	151,674
Liabilities:
Crude oil swaps	$	—	$	—	$	—		$	—
Gasoline swaps		—		—		(14,149	)		(14,149	)
Diesel swaps		—		—		(53,744	)		(53,744	)
Jet fuel swaps		—		—		(96,556	)		(96,556	)
Crude oil options		—		—		—			—
Jet fuel options		—		—		—			—
Interest rate swaps		—		—		(3,963	)		(3,963	)
Pension plan investments		—		—		—			—
Total liabilities at fair value	$	—	$	—	$	(168,412	)	$	(168,412	)

     The table below sets forth a summary of net changes in fair value of the Company’s Level 3 financial assets and liabilities for the six months ended June 30, 2011 and 2010:

	Six Months Ended
	June 30,
	2011			2010
Fair value at January 1,	$	(32,814	)	$	26,138
Realized losses		1,984			5,858
Unrealized losses		(3,541	)		(15,766	)
Change in fair value of cash flow hedges		(142,775	)		(10,924	)
Settlements		39,261			(14,823	)
Transfers in (out) of Level 3		—			—
Fair value at June 30,	$	(137,885	)	$	(9,517	)
Total losses included in net loss attributable to changes in unrealized losses relating to financial assets and liabilities held as of June 30,	$	(3,541	)	$	(15,766	)

     All settlements from derivative instruments that are deemed “effective” and were designated as cash flow hedges are included in sales for gasoline, diesel and jet fuel derivatives, cost of sales for crude oil and natural gas derivatives, and interest expense for interest rate derivatives in the unaudited condensed consolidated financial statements of operations in the period that the hedged cash flow occurs. Any “ineffectiveness” associated with these derivative instruments are recorded in earnings immediately in unrealized loss on derivative instruments in the unaudited condensed consolidated statements of operations. All settlements from derivative instruments not designated as cash flow hedges are recorded in realized loss on derivative instruments in the unaudited condensed consolidated statements of operations. See Note 6 for further information on derivative instruments.