21. Refined Petroleum Products and Crude Oil Inventory Risk Management

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Refined Petroleum Products and Crude Oil Inventory Risk Management

Under our refined petroleum products and crude oil inventory risk management policy, Genesis may, but is not required to, use commodity futures contracts to mitigate the change in value for a portion of our inventory volumes subject to market price fluctuations in our inventory. The physical volumes are not exchanged, and these contracts are net settled by Genesis with cash.

The fair value of these contracts is reflected in our consolidated balance sheets and the related net gain or loss is recorded within cost of refined petroleum products sold in our consolidated statements of operations. Quoted prices for identical assets or liabilities in active markets (Level 1) are considered to determine the fair values for the purpose of marking to market the financial instruments at each period end.

Commodity transactions are executed by Genesis to minimize transaction costs, monitor consolidated net exposures and allow for increased responsiveness to changes in market factors. Genesis may, but is not required to, initiate an economic hedge on our refined petroleum products and crude oil when our inventory levels exceed targeted levels (currently 1.5 days production). Although the decision to enter into a futures contract is made solely by Genesis, Genesis typically confers with management as part of Genesis’ decision making process.

Due to mark-to-market accounting during the term of the commodity contracts, significant unrealized non-cash net gains and losses could be recorded in our results of operations. Additionally, Genesis may be required to collateralize any mark-to-market losses on outstanding commodity contracts.

As of September 30, 2014, we had the following obligations based on futures contracts of refined petroleum products and crude oil that were entered into as economic hedges through Genesis. The information presents the notional volume of open commodity instruments by type and year of maturity (volumes in barrels):

Inventory positions (futures):	2014		2015		2016
Refined petroleum products and crude oil -
net short positions		45,000		-		-

The following table provides the location and fair value amounts of derivative instruments that are reported in our consolidated balance sheets at September 30, 2014 and December 31, 2013: 

		Fair Value
		September 30,
Asset Derivatives	Balance Sheets Location	2014			2013
Commodity contracts	Prepaid expenses and other current assets (accrued expenses and other current liabilities)	$	(19,200	)	$	6,950

The following table provides the effect of derivative instruments in our consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013: 

		Gain (Loss) Recognized
		Three Months Ended					Nine Months Ended
		September 30,					September 30,
Derivatives	Statements of Operations Location	2014		2013			2014			2013
Commodity contracts	Cost of refined products sold	$	396,271	$	(297,179	)	$	(12,438	)	$	(330,320	)