Derivative Instruments And Hedging Activities

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments And Hedging Activities

Derivative Instruments and Hedging Activities

Commodity Price Risk Management

Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, forward purchase and sales and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs.

Foreign Currency Risk Management

We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward and foreign exchange swap contracts to mitigate the exposure associated with fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the U.S. dollar.

Accounting Hedges

We have swap contracts serving as cash flow hedges against price risk on forecasted purchases of natural gas and to lock in basis spread differentials on forecasted purchases of crude oil. We also periodically have forward sales contracts that lock in the prices of future sales of crude oil and refined product. These contracts have been designated as accounting hedges and are measured at fair value with offsetting adjustments (gains/losses) recorded directly to other comprehensive income. These fair value adjustments are later reclassified to earnings as the hedging instruments mature.

The following table presents the pre-tax effect on other comprehensive income (“OCI”) and earnings due to fair value adjustments and maturities of hedging instruments under hedge accounting:

	Net Unrealized Gain (Loss) Recognized in OCI					Gain (Loss) Reclassified into Earnings
Derivatives Designated as Cash Flow Hedging Instruments	Three Months Ended March 31,					Income Statement Location	Three Months Ended March 31,
	2020			2019			2020			2019
	(In thousands)
Commodity contracts	$	(13,324	)	$	13,948	Sales and other revenues	$	5,452		$	(1,799	)
						Cost of products sold	1,830			3,622
						Operating expenses	(706		)	(181		)
Total	$	(13,324	)	$	13,948		$	6,576		$	1,642

Economic Hedges

We have commodity contracts including contracts to lock in basis spread differentials on forecasted purchases of crude oil, NYMEX futures contracts to lock in prices on forecasted purchases and sales of inventory and forward purchase and sell contracts that serve as economic hedges (derivatives used for risk management, but not designated as accounting hedges). We also have forward currency contracts to fix the rate of foreign currency. In addition, our catalyst financing arrangements discussed in Note 9 could require repayment under certain conditions based on the future pricing of platinum, which is an embedded derivative. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to income.

The following table presents the pre-tax effect on income due to maturities and fair value adjustments of our economic hedges:

	Gain (Loss) Recognized in Earnings
Derivatives Not Designated as Hedging Instruments	Income Statement Location	Three Months Ended March 31,
		2020		2019
		(In thousands)
Commodity contracts	Cost of products sold	$	25,089	$	(7,417	)
	Interest expense	9,812		(2,016		)
Foreign currency contracts	Gain (loss) on foreign currency transactions	33,475		(7,606		)
	Total	$	68,376	$	(17,039	)

As of March 31, 2020, we have the following notional contract volumes related to outstanding derivative instruments:

		Notional Contract Volumes by Year of Maturity
	Total Outstanding Notional	2020	2021	Unit of Measure
Derivatives Designated as Hedging Instruments
Natural gas price swaps - long	3,150,000	1,350,000	1,800,000	MMBTU
Crude oil price swaps (basis spread) - long	3,575,000	3,575,000	—	Barrels
Derivatives Not Designated as Hedging Instruments
NYMEX futures (WTI) - short	455,000	455,000	—	Barrels
Crude oil price swaps (basis spread) - long	1,100,000	1,100,000	—	Barrels
Forward gasoline contracts - long	1,450,000	1,450,000	—	Barrels
Foreign currency forward contracts	426,037,417	319,732,567	106,304,850	U.S. dollar
Forward commodity contracts (platinum)	40,867	—	40,867	Troy ounces

The following table presents the fair value and balance sheet locations of our outstanding derivative instruments. These amounts are presented on a gross basis with offsetting balances that reconcile to a net asset or liability position in our consolidated balance sheets. We present on a net basis to reflect the net settlement of these positions in accordance with provisions of our master netting arrangements.

	Derivatives in Net Asset Position						Derivatives in Net Liability Position
	Gross Assets		Gross Liabilities Offset in Balance Sheet		Net Assets Recognized in Balance Sheet		Gross Liabilities		Gross Assets Offset in Balance Sheet		Net Liabilities Recognized in Balance Sheet
			(In thousands)
March 31, 2020
Derivatives designated as cash flow hedging instruments:
Commodity price swap contracts	$	—	$	—	$	—	$	8,812	$	—	$	8,812
	$	—	$	—	$	—	$	8,812	$	—	$	8,812
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts	$	7,412	$	—	$	7,412	$	—	$	—	$	—
Commodity price swap contracts	—		—		—		3,197		—		3,197
Commodity forward contracts	4,564		—		4,564		3,757		—		3,757
Foreign currency forward contracts	25,668		—		25,668		—		—		—
	$	37,644	$	—	$	37,644	$	6,954	$	—	$	6,954
Total net balance					$	37,644					$	15,766
Balance sheet classification:	Prepayment and other				$	37,644	Accrued liabilities				$	15,069
							Other long-term liabilities				697
					$	37,644					$	15,766

	Derivatives in Net Asset Position							Derivatives in Net Liability Position
	Gross Assets		Gross Liabilities Offset in Balance Sheet			Net Assets Recognized in Balance Sheet		Gross Liabilities		Gross Assets Offset in Balance Sheet		Net Liabilities Recognized in Balance Sheet
			(In thousands)
December 31, 2019
Derivatives designated as cash flow hedging instruments:
Commodity price swap contracts	$	7,526	$	(1,784	)	$	5,742	$	1,230	$	—	$	1,230
	$	7,526	$	(1,784	)	$	5,742	$	1,230	$	—	$	1,230
Derivatives not designated as cash flow hedging instruments:
NYMEX futures contracts	$	—	$	—		$	—	$	2,578	$	—	$	2,578
Commodity price swap contracts	7,713		—			7,713		—		—		—
Commodity forward contracts	4,133		—			4,133		3,685		—		3,685
Foreign currency forward contracts	—		—			—		6,722		—		6,722
	$	11,846	$	—		$	11,846	$	12,985	$	—	$	12,985
Total net balance						$	17,588					$	14,215
Balance sheet classification:	Prepayment and other					$	17,588	Accrued liabilities				$	12,985
								Other long-term liabilities				1,230
						$	17,588					$	14,215

At March 31, 2020, we had a pre-tax net unrealized loss of $8.8 million classified in accumulated other comprehensive loss that relates to all accounting hedges having contractual maturities through 2021. Assuming commodity prices remain unchanged, an unrealized loss of $8.1 million will be effectively transferred from accumulated other comprehensive loss into the statement of income as the hedging instruments contractually mature over the next twelve-month period.