Derivative Financial Instruments

9 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure

Derivative Financial Instruments

Commodity Derivatives — Mark to Market

The Company selectively utilizes commodity derivatives to manage its exposure to commodity price fluctuations and uses crude oil and refined product commodity derivative contracts to reduce risk associated with potential price changes on committed obligations. The Company does not speculate using derivative instruments. Credit risk on the Company’s derivative instruments is mitigated by transacting with counterparties meeting established collateral and credit criteria.

Cash Flow Hedges

To designate a derivative as a cash flow hedge, the Company documents at the inception of the hedge the assessment that the derivative will be highly effective in offsetting expected changes in cash flows from the item hedged. This assessment, which is updated at least quarterly, is generally based on the most recent relevant historical correlation between the derivative and the item hedged. If, during the term of the derivative, the hedge is determined to be no longer highly effective, hedge accounting is prospectively discontinued and any remaining unrealized gains or losses, based on the effective portion of the derivative at that date, are reclassified to earnings when the underlying transaction occurs.

Commodity Derivatives. In May 2008, as part of financing the acquisition of the refinery, the Company entered into futures contracts for the forward purchase of crude oil and the forward sale of heating oil of 14,849,750 barrels. These futures contracts were designated as cash flow hedges for accounting purposes. In the fourth quarter of 2008, the Company determined during its retrospective assessment of hedge effectiveness that the hedge was no longer highly effective. Cash flow hedge accounting was discontinued in the fourth quarter of 2008 and all changes in value subsequent to the discontinuance were recognized into earnings. Losses of $2,825 and $6,354 for the three and nine months ended September 30, 2010 were reclassified from equity to earnings due to the discontinuance of cash flow hedge accounting, respectively. No component of the derivative instruments’ gains or losses was excluded from the assessment of hedge effectiveness.

The following table presents the effect of derivative instruments on the statements of financial position.

	As of September 30, 2011
	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity contracts (swaps)		$	—	Accrued liabilities	$	(2,540	)
Commodity contracts (call options)		—		Accrued liabilities	(33,429		)
Commodity contracts (futures and forwards)	Accounts receivable	2,134		Accrued liabilities	(1,398		)
Total derivatives not designated as hedging instruments		$	2,134		$	(37,367	)

	As of December 31, 2010
	Asset Derivatives			Liability Derivatives
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
Derivatives not designated as hedging instruments:
Commodity contracts (swaps)		$	—	Accounts payable	$	(681	)
Commodity contracts (call options)		—		Accrued liabilities	(5,748		)
Commodity contracts (futures and forwards)	Accounts receivable	1,073		Accrued liabilities	(92		)
Commodity contracts (call options)		—		Other non-current liabilities	(3,128		)
Total derivatives not designated as hedging instruments		$	1,073		$	(9,649	)

The following tables present the effect of derivative instruments on the Company’s statements of operations and accumulated other comprehensive income (“OCI”).

Cash Flow Hedging Relationships	Gain (Loss) Recognized in OCI		Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)				Gain (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
			Location	Amount			Location	Amount
For the Three Months Ended September 30, 2011
Commodity contracts (swaps)	$	—	Cost of sales	$	—			$	—
Total derivatives	$	—		$	—			$	—
For the Three Months Ended September 30, 2010
Commodity contracts (swaps)	$	—	Cost of sales	$	(2,825	)		$	—
Total derivatives	$	—		$	(2,825	)		$	—

Cash Flow Hedging Relationships	Gain (Loss) Recognized in OCI		Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)				Gain (Loss) Reclassified from Accumulated OCI into Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
			Location	Amount			Location	Amount
For the Nine Months Ended September 30, 2011
Commodity contracts (swaps)	$	—	Cost of sales	$	—			$	—
Total derivatives	$	—		$	—			$	—
For the Nine Months Ended September 30, 2010
Commodity contracts (swaps)	$	—	Cost of sales	$	(6,354	)		$	—
Total derivatives	$	—		$	(6,354	)		$	—

Derivatives not designated as hedging instruments:

	Gain (Loss) Recognized in Income
	Location	Amount
For the Three Months Ended September 30, 2011
Commodity contracts (futures & forwards)	Cost of sales	$	(2,960	)
Commodity contracts (swaps)	Cost of sales	(1,038		)
Commodity contracts (call options)	Other income (loss), net	(14,269		)
Total derivatives		$	(18,267	)
For the Three Months Ended September 30, 2010
Commodity contracts (futures & forwards)	Cost of sales	$	1,291
Commodity contracts (swaps)	Cost of sales	(126		)
Total derivatives		$	1,165

	Gain (Loss) Recognized in Income
	Location	Amount
For the Nine Months Ended September 30, 2011
Commodity contracts (futures & forwards)	Cost of sales	$	8,091
Commodity contracts (swaps)	Cost of sales	(3,716		)
Commodity contracts (call options)	Other income (loss), net	(51,093		)
Total derivatives		$	(46,718	)
For the Nine Months Ended September 30, 2010
Commodity contracts (futures & forwards)	Cost of sales	$	1,848
Commodity contracts (swaps)	Cost of sales	(501		)
Total derivatives		$	1,347