XML 22 R10.htm IDEA: XBRL DOCUMENT

Financial Instruments

9 Months Ended

Sep. 30, 2018

Financial Instruments And Fair Value Disclosures [Abstract]

Fair value of financial instruments

We record certain financial assets and liabilities at fair value at each balance sheet date. The tables below summarize the balances of derivative assets and liabilities at September 30, 2018 and December 31, 2017 (in thousands):



	September 30, 2018
	Level 1		Level 2		Level 3		Netting ⁽¹⁾			Total - Net
Assets:
Commodity derivatives ⁽²⁾	$	99	$	—	$	—	$	(99	)	$	—
Interest rate swaps	—		—		154		—			154
Total assets	99		—		154		(99		)	154
Liabilities:
Commodity derivatives	3,242		—		—		(99		)	3,143
Foreign currency forwards	—		1,037		—		—			1,037



Total liabilities	3,242			1,037			—			(99		)	4,180
Net assets (liabilities) at fair value	$	(3,143	)	$	(1,037	)	$	154		$	—		$	(4,026	)

	December 31, 2017
	Level 1			Level 2			Level 3			Netting ⁽¹⁾			Total - Net
Assets:
Commodity derivatives ⁽²⁾	$	602		$	—		$	—		$	(602	)	$	—
Foreign currency forwards	—			2,564			—			—			2,564
Total assets	602			2,564			—			(602		)	2,564
Liabilities:
Commodity derivatives	1,970			—			—			(602		)	1,368
Interest rate swaps	—			—			1,228			—			1,228
Total liabilities	1,970			—			1,228			(602		)	2,596
Net assets (liabilities) at fair value	$	(1,368	)	$	2,564		$	(1,228	)	$	—		$	(32	)

(1) Relates primarily to exchange traded futures. Gain and loss positions on multiple contracts are settled net on a daily basis with the exchange.

(2) Commodity derivatives are subject to netting arrangements.

“Level 1” measurements are based on inputs consisting of unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. These include commodity futures contracts that are traded on an exchange.

“Level 2” measurements are based on inputs consisting of market observable and corroborated prices for similar derivative contracts. Assets and liabilities classified as Level 2 include over the counter (“OTC”) traded physical fixed priced purchases and sales forward contracts.

“Level 3” measurements are based on inputs from a pricing service and/or internal valuation models incorporating observable and unobservable market data. These could include commodity derivatives, such as forwards and swaps for which there is not a highly liquid market and therefore are not included in Level 2 above and interest rate swaps for which certain unobservable inputs are used in the valuation.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value levels. At September 30, 2018, all of our physical fixed price forward purchases and sales commodity contracts were being accounted for as normal purchases and normal sales.

The following table summarizes changes in the fair value of our net financial liabilities classified as Level 3 in the fair value hierarchy (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net assets (liabilities) at beginning of the period	$	110		$	—		$	(1,228	)	$	—
Interest rate swaps acquired through acquisition	—			(3,275		)	—			(3,275		)
Transfers out of Level 3	—			—			—			—
Realized/Unrealized gain included in earnings*	268			618			1,487			618
Settlements	(224		)	—			(105		)	—
Net assets (liabilities) at end of period	$	154		$	(2,657	)	$	154		$	(2,657	)

*Gains and losses related to interest rate swaps are recorded in interest expense in the condensed consolidated statements of operations and comprehensive income (loss).

See Note 6 for fair value of debt instruments. The approximate fair value of cash and cash equivalents, accounts receivable and accounts payable is equal to book value due to the short-term nature of these items.

Commodity derivative contracts

Our consolidated results of operations and cash flows are impacted by changes in market prices for petroleum products. This exposure to commodity price risk is managed, in part, by entering into various commodity derivatives.

We seek to manage the price risk associated with our marketing operations by limiting our net open positions through (i) the concurrent purchase and sale of like quantities of petroleum products to create back-to-back transactions that are intended to lock in positive margins based on the timing, location or quality of the petroleum products purchased and delivered or (ii) derivative contracts. Our storage and transportation assets can also be used to mitigate time and location basis risks, respectively. All marketing activities are subject to our Comprehensive Risk Management Policy, Delegation of Authority policy and their supporting policies and procedures, which establish limits in order to manage risk and mitigate financial exposure.

Our commodity derivatives can be comprised of swaps, futures contracts and forward contracts of crude oil, natural gas and natural gas liquids. These are defined as follows:

Swaps – OTC transactions where a floating price, basis or index is exchanged for a fixed (or a different floating) price, basis or index at a preset schedule in the future, according to an agreed-upon formula.

Futures contracts – Exchange traded contracts to buy or sell a commodity. These contracts are standardized by the exchange in terms of quality, quantity, delivery period and location for each commodity.

Forward contracts – OTC contracts to buy or sell a commodity at an agreed upon future date. The buyer and seller agree on specific terms (price, quantity, delivery period and location) and conditions at the inception of the contract.

The following table sets forth the notional quantities for derivative instruments entered into (in thousands of barrels):



	Three Months Ended September 30,		Nine Months Ended September 30,
	2018	2017	2018	2017
Sales	2,704	3,386	10,467	9,980
Purchases	2,701	2,820	9,892	9,772

We have not designated any of our commodity derivative instruments as accounting hedges. We have recorded the fair value of our commodity derivative instruments on our condensed consolidated balance sheets in “other current assets” and “other current liabilities” in the following amounts (in thousands):



	September 30, 2018				December 31, 2017
	Assets		Liabilities		Assets		Liabilities
Commodity contracts	$	—	$	3,143	$	—	$	1,368

We have posted margin deposits as collateral with brokers who have the right of set off associated with these funds. At September 30, 2018 and December 31, 2017, our margin deposit balances were in net asset positions of $4.8 million and $1.9 million, respectively. These margin account balances have not been offset against our net commodity derivative instrument (contract) positions. Had these margin deposits been netted against our net commodity derivative instrument (contract) positions as of September 30, 2018 and December 31, 2017, we would have had asset positions of $1.7 million and $0.5 million, respectively.

Realized and unrealized gains (losses) from our commodity derivatives were recorded to product revenue in the following amounts (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Commodity contracts	$	(1,247	)	$	(3,987	)	$	(13,477	)	$	4,886

Interest rate swaps

We have interest rate swaps which allow us to limit exposure to interest rate fluctuations. The swaps only apply to a portion of our outstanding debt and provide only partial mitigation of interest rate fluctuations. We have not designated the swaps as hedges, as such, changes in the fair value of the swaps are recorded through current period earnings as a component of interest expense. At September 30, 2018 and December 31, 2017, we had interest rate swaps with notional values of $524.3 million and $491.1 million, respectively. At September 30, 2018, the fair value of our interest rate swaps was $0.2 million which was reported within “other current assets” in our condensed consolidated balance sheet. At December 31, 2017, the fair value of our interest rate swaps was $1.2 million which was reported within “other current liabilities” in our condensed consolidated balance sheet. For the three months ended September 30, 2018 and 2017, we recognized realized and unrealized losses of $0.3 million and $0.6 million related to interest rate swaps, respectively. For the nine months ended September 30, 2018 and 2017, we recognized realized and unrealized gains of $1.5 million and $0.6 million related to interest rate swaps, respectively.

Foreign currency forwards

We have foreign currency forwards primarily to purchase Canadian dollars to limit exposure to foreign currency rate fluctuations for capital contributions to our SemCAMS segment primarily to fund capital projects. We have not designated the forwards as hedges; therefore, changes in the fair value of the forwards are recorded through current period earnings as a component of foreign currency transaction gains and losses. At September 30, 2018 and December 31, 2017, we had foreign currency forwards with notional values of $73.9 million and $197.7 million, respectively. At September 30, 2018, the fair value of our foreign currency forwards was $1.0 million, which is reported within "other current liabilities" in our condensed consolidated balance sheet. At December 31, 2017, the fair value of our foreign currency forwards was $2.6 million, which is reported within "other current assets" and “other noncurrent assets” in our condensed consolidated balance sheet. For the three months ended September 30, 2018, we recognized realized and unrealized gains of $1.0 million related to foreign currency forwards. For the nine months ended September 30, 2018, we recognized realized and unrealized losses of $5.5 million related to foreign currency forwards. For the three months and nine months ended September 30, 2017, there were no foreign currency forwards outstanding.

Concentrations of risk

During the three months ended September 30, 2018, two customers, primarily of our Crude Supply and Logistics segment, accounted for more than 10% of our consolidated revenue with revenues of $147.1 million. One third-party supplier primarily of our Crude Supply and Logistics segment accounted for more than 10% of our consolidated costs of products sold with purchases of $64.1 million.

During the nine months ended September 30, 2018, one customer, primarily of our Crude Supply and Logistics segment, accounted for more than 10% of our consolidated revenue with revenues of $492.5 million. One third-party supplier of our Crude Supply and Logistics segment accounted for more than 10% of our consolidated costs of products sold with purchases of $158.1 million.

At September 30, 2018, two third-party customers, primarily of our Crude Supply and Logistics segment, accounted for approximately 25% of our consolidated accounts receivable.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details