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Fair Value Measurements (Tables)
 12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements, Nonrecurring
The fair values of the assets acquired and liabilities assumed as a result of the Northwest Retail acquisition were estimated as of March 23, 2018, the date of the acquisition, using valuation techniques described in notes (1) through (5) described below.
 
 
 
Valuation
 
Fair Value
 
Technique
 
(in thousands)
 
 
Net working capital
$
3,822

 
(1)
Property, plant, and equipment
30,230

 
(2)
Goodwill
46,210

 
(3)
Long-term capital lease obligations
(5,244
)
 
(4)
Other non-current liabilities
(487
)
 
(5)
Total
$
74,531

 
 
(1)
Current assets acquired and liabilities assumed were recorded at their net realizable value.
(2)
The fair value of property, plant, and equipment was estimated using the cost approach. Under the cost approach, the total replacement cost of the property is determined based on industry sources with adjustments for regional factors. The total cost is then adjusted for depreciation based on the physical age of the assets and obsolescence. The fair value of the land was estimated using the sales comparison approach. Under this approach, the sales prices of similar properties are adjusted to account for differences in land characteristics. We consider this to be a Level 3 fair value measurement. The fair value of capital lease assets was estimated using the income approach. Under the income approach, the annual lease market rental rate cash flow stream is estimated and then discounted to present value over the remaining life of the lease using a pre-tax discount rate based on expected return for the specific asset type and location.
(3)
The excess of the purchase price paid over the fair value of the identifiable assets acquired and liabilities assumed is allocated to goodwill.
(4)
Long-term capital lease obligations were estimated based on the present value of lease payments over the term of the lease.
(5)
Other non-current liabilities are primarily related to asset retirement obligations. AROs are calculated based on the present value of the estimated removal and other closure costs using our credit-adjusted risk-free rate.
The fair values of the assets acquired and liabilities assumed as a result of the Wyoming Refining acquisition were estimated as of July 14, 2016, the date of the acquisition, using valuation techniques described in notes (1) through (5) described below.
 
 
 
Valuation
 
Fair Value
 
Technique
 
(in thousands)
 
 
Net working capital
$
(11,092
)
 
(1)
Property, plant, and equipment
254,367

 
(2)
Goodwill
66,449

 
(3)
Long-term debt
(68,136
)
 
(4)
Other non-current liabilities
(32,222
)
 
(5)
Total
$
209,366

 
 
(1)
Current assets acquired and liabilities assumed were recorded at their net realizable value.
(2)
The fair value of property, plant, and equipment was estimated using the cost approach. Under the cost approach, the total replacement cost of the property is determined based on industry sources with adjustments for regional factors. The total cost is then adjusted for depreciation based on the physical age of the assets and obsolescence. The fair value of the land was estimated using the sales comparison approach. Under this approach, the sales prices of similar properties are adjusted to account for differences in land characteristics. We consider this to be a Level 3 fair value measurement.
(3)
The excess of the purchase price paid over the fair value of the identifiable assets acquired and liabilities assumed is allocated to goodwill.
(4)
Long-term debt was recorded at carrying value. The carrying value of long-term debt approximated fair value due to its floating interest rate.
(5)
Other non-current liabilities include environmental liabilities and the underfunded status of the Wyoming Refining defined benefit plan. The underfunded status of the defined benefit plan represents the difference between the fair value of the plan’s assets and the projected benefit obligations. Environmental liabilities are based on management’s best estimates of probable future costs using current available information. We consider this to be a Level 3 fair value measurement.
Fair Value, Assets Measured on Recurring Basis
The following table provides information on the fair value amounts (in thousands) of these derivatives as of December 31, 2018 and 2017 and their placement within our consolidated balance sheets.
 
 
 
December 31,
 
Balance Sheet Location
 
2018
 
2017
 
 
 
Asset (Liability)
Commodity derivatives (1)
Prepaid and other current assets
 
$
4,973

 
$
2,814

Commodity derivatives
Other accrued liabilities
 
(700
)
 
(39
)
J. Aron repurchase obligation derivative
Obligations under inventory financing agreements
 
4,085

 
(19,564
)
Interest rate derivatives
Prepaid and other current assets
 
191

 
1,482

Interest rate derivatives
Other long-term assets
 
—

 
2,328

_________________________________________________________
(1)
Does not include cash collateral of $2.7 million and $0.2 million recorded in Prepaid and other current assets and $8.3 million and $7.0 million in Other long-term assets as of December 31, 2018 and 2017, respectively.
Fair value amounts by hierarchy level as of December 31, 2018 and 2017 are presented gross in the tables below (in thousands):
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Effect of Counter-party Netting
 
Net Carrying Value on Balance Sheet (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
170

 
$
5,234

 
$
—

 
$
5,404

 
$
(431
)
 
$
4,973

Interest rate derivatives
—

 
191

 
—

 
191

 
—

 
191

Total
$
170

 
$
5,425

 
$
—

 
$
5,595

 
$
(431
)
 
$
5,164

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Common stock warrants
$
—

 
$
—

 
$
(5,007
)
 
$
(5,007
)
 
$
—

 
$
(5,007
)
Commodity derivatives
(870
)
 
(261
)
 
—

 
(1,131
)
 
431

 
(700
)
J. Aron repurchase obligation derivative
—

 
—

 
4,085

 
4,085

 
—

 
4,085

Total
$
(870
)
 
$
(261
)
 
$
(922
)
 
$
(2,053
)
 
$
431

 
$
(1,622
)

 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Effect of Counter-party Netting
 
Net Carrying Value on Balance Sheet (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
557

 
$
21,907

 
$
—

 
$
22,464

 
$
(19,650
)
 
$
2,814

Interest rate derivatives
—

 
3,810

 
—

 
3,810

 
—

 
3,810

Total
$
557

 
$
25,717

 
$
—

 
$
26,274

 
$
(19,650
)
 
$
6,624

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Common stock warrants
$
—

 
$
—

 
$
(6,808
)
 
$
(6,808
)
 
$
—

 
$
(6,808
)
Commodity derivatives
(596
)
 
(19,093
)
 
—

 
(19,689
)
 
19,650

 
(39
)
J.Aron repurchase obligation derivative
—

 
—

 
(19,564
)
 
(19,564
)
 
—

 
(19,564
)
Total
$
(596
)
 
$
(19,093
)
 
$
(26,372
)
 
$
(46,061
)
 
$
19,650

 
$
(26,411
)
_________________________________________________________
(1)
Does not include cash collateral of $10.9 million and $7.2 million as of December 31, 2018 and 2017, respectively included on our consolidated balance sheets.
Reconcilliation of Level 3 Derivative Instruments, Fair Value
A roll forward of Level 3 derivative instruments measured at fair value on a recurring basis is as follows (in thousands):
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Beginning balance
 
$
(26,372
)
 
$
(25,134
)
 
$
(25,867
)
Settlements
 
—

 
—

 
16,810

Total unrealized income (loss) included in earnings
 
25,450

 
(1,238
)
 
(16,077
)
Ending balance
 
$
(922
)
 
$
(26,372
)
 
$
(25,134
)
Schedule of Carrying Value and Fair Value of Long Term Debt and Other Financial Instruments
The carrying value and fair value of long-term debt and other financial instruments as of December 31, 2018 and 2017 is as follows (in thousands):
 
Carrying Value
 
Fair Value
December 31, 2018
 
 
 
5.00% Convertible Senior Notes due 2021 (1) (3)
$
100,411

 
$
121,488

7.75% Senior Secured Notes due 2025 (1)
290,763

 
270,000

Mid Pac Term Loan (2)
1,466

 
1,466

Common stock warrants (2)
5,007

 
5,007

December 31, 2017
 
 
 
5.00% Convertible Senior Notes due 2021 (1) (3)
$
95,486

 
$
149,007

7.75% Senior Secured Notes due 2025 (1)
289,326

 
300,423

Common stock warrants (2)
6,808

 
6,808

_________________________________________________________
(1)
The fair values of the 5.00% Convertible Senior Notes and the 7.75% Senior Secured Notes are considered Level 2 measurements as discussed below.
(2)
The fair values of the common stock warrants and the Mid Pac Term Loan are considered a Level 3 measurement in the fair value hierarchy.
(3)
The carrying value of the 5.00% Convertible Senior Notes excludes the fair value of the equity component, which was classified as equity upon issuance.