Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Financial Instruments, Owned, at Fair Value [Abstract]

Our financial instruments measured at fair value on a recurring basis consist of investments in marketable securities and derivative instruments.

Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability, including assumptions about risk). GAAP categorizes inputs used in fair value measurements into three broad levels as follows:


•	(Level 1) Quoted prices in active markets for identical assets or liabilities.


•	(Level 2) Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data.


•	(Level 3) Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs.

The carrying amounts of marketable securities and derivative instruments at June 30, 2017 and December 31, 2016 were as follows:



			Fair Value by Input Level
	Carrying Amount		Level 1		Level 2		Level 3
	(In thousands)
June 30, 2017
Assets:
NYMEX futures contracts	$	662	$	662	$	—	$	—
Commodity price swaps	7,863		—		7,863		—
Commodity forward contracts	1,447		—		1,447		—
HEP interest rate swaps	63		—		63		—
Total assets	$	10,035	$	662	$	9,373	$	—

Liabilities:
Commodity price swaps	$	20,631	$	—	$	20,631	$	—
Commodity forward contracts	1,218		—		1,218		—
Total liabilities	$	21,849	$	—	$	21,849	$	—



December 31, 2016
Assets:
Marketable securities	$	424,148	$	—	$	424,148	$	—
Commodity price swaps	14,563		—		14,358		205
Commodity forward contracts	5,905		.		5,905		—
HEP interest rate swaps	91		—		91		—
Total assets	$	444,707	$	—	$	444,502	$	205

Liabilities:
NYMEX futures contracts	$	1,975	$	1,975	$	—	$	—
Commodity price swaps	26,845		—		24,086		2,759
Commodity forward contracts	8,316		—		8,316		—
Foreign currency forward contracts	6,519		—		6,519		—
Total liabilities	$	43,655	$	1,975	$	38,921	$	2,759

Level 1 Instruments

Our NYMEX futures contracts are exchange traded and are measured and recorded at fair value using quoted market prices, a Level 1 input.

Level 2 Instruments

Investments in marketable securities, derivative instruments consisting of commodity price swaps and forward sales and purchase contracts and HEP’s interest rate swaps are measured and recorded at fair value using Level 2 inputs. The fair values of the commodity price and interest rate swap contracts are based on the net present value of expected future cash flows related to both variable and fixed rate legs of the respective swap agreements. The measurements are computed using market-based observable inputs, quoted forward commodity prices with respect to our commodity price swaps and the forward London Interbank Offered Rate (“LIBOR”) yield curve with respect to HEP’s interest rate swaps. The fair value of the marketable securities is based on values provided by a third-party, which were derived using market quotes for similar type instruments, a Level 2 input.

Level 3 Instruments

We at times have commodity price swap contracts that relate to forecasted sales of unleaded gasoline and forward commodity sales and purchase contracts for which quoted forward market prices are not readily available. The forward rate used to value these price swaps and forward sales and purchase contracts are derived using a projected forward rate using quoted market rates for similar products, adjusted for regional pricing and grade differentials, a Level 3 input.

The following table presents the changes in fair value of our Level 3 assets and liabilities (all related to derivative instruments) for the three and six months ended June 30, 2017:



	Three Months Ended June 30, 2017		Six Months Ended June 30, 2017
Level 3 Instruments	Three Months Ended June 30, 2017		Six Months Ended June 30, 2017
	(In thousands)
Liability balance at beginning of period	$	—	$	(2,554	)
Change in fair value:
Recognized in other comprehensive income	—		1,625
Recognized in cost of products sold	—		(1		)
Settlement date fair value of contractual maturities:
Recognized in sales and other revenues	—		(165		)
Recognized in cost of products sold	—		1,095
Liability balance at end of period	$	—	$	—

- 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.

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