Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Goodwill

At March 31, 2020, we performed a quantitative goodwill impairment test of all of our reporting units due to (i) the global economic impact of the COVID-19 pandemic and (ii) a steep decline in current and forecasted prices and demand for crude oil and refined products. As part of our quantitative impairment test, we compared the carrying value of the net assets of the reporting unit to the estimated fair value of the reporting unit. In assessing the fair value of the reporting units, we primarily utilized a market approach based on observable multiples for comparable companies within our industry. Our refining reporting units in Hawaii and Washington were fully impaired and the goodwill associated with our retail reporting unit in Washington and Idaho was partially impaired, resulting in a charge of $67.9 million in our consolidated statement of operations for the year ended December 31, 2020. The goodwill impairment expense was allocated to the Refining segment ($38.1 million) and to the Retail segment ($29.8 million). We consider the impairment of our goodwill to be a Level 3 fair value measurement.

Investment in Laramie Energy

We evaluate equity method investments for impairment when factors indicate that a decrease in the value of our investment has occurred and the carrying amount of our investment may not be recoverable. An impairment loss, based on the difference between the carrying value and the estimated fair value of the investment, is recognized in earnings when an impairment is deemed to be other than temporary.

At March 31, 2020, we conducted an impairment evaluation of our investment in Laramie Energy because of (i) the global economic impact of the COVID-19 pandemic, (ii) an increase in the weighted-average cost of capital for energy companies, and (iii) continuing declines in natural gas prices through the first quarter of 2020. Based on our evaluation, we determined that the estimated fair value of our investment in Laramie Energy was $1.9 million, compared to a carrying value of $47.2 million at March 31, 2020. The fair value estimate was determined using a discounted cash flow analysis based on natural gas forward strip prices as of March 31, 2020 for the years 2020 and 2021 of the forecast, and a blend of forward strip pricing and third-party analyst pricing for the years 2022 through 2028. Other significant inputs used in the discounted cash flow analysis included proved and unproved reserves information, forecasts of operating expenditures, and the applicable discount rate. As part of our evaluation, we considered the likelihood that New York Mercantile Exchange (“NYMEX”) Henry Hub prices, which declined from an average spot price of $2.29 ($/MMBtu) at December 31, 2019 to $2.03 ($/MMBtu) in the first quarter of 2020, will recover in the near term. A discount rate of 10% was used to reflect the higher cost of capital under the economic conditions as of March 31, 2020. As a result, we recorded an other-than temporary impairment charge of $45.3 million in Equity losses from Laramie Energy, LLC on our consolidated statement of operations for the year ended December 31, 2020.

Par West Refinery

Pursuant to GAAP accounting guidelines, the Par West refinery was deemed abandoned in the fourth quarter of 2020 due to the following factors: the idling of the assets for more than an insignificant amount of time, the significant cost to restart the refinery, and a lack of a current plan or timeline to restart the refinery. Given the lack of alternative uses of the Par West

refinery assets, we impaired all assets that are not expected to be used as part of our ongoing refining operations in Hawaii down to their salvage value, which is immaterial. As a result of this evaluation, we recorded an impairment charge of $17.9 million on our statement of operations for the year ended December 31, 2020. For the year ended December 31, 2021, we recorded $0.2 million of Impairment expense on our consolidated statement of operations related to this idling.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Derivative instruments

We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as Level 1 instruments are valued using quoted prices in active markets for identical assets and liabilities. These include our exchange traded futures. Level 2 instruments are valued using quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Our Level 2 instruments include OTC swaps and options. These derivatives are valued using market quotations from independent price reporting agencies and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. The valuation of the embedded derivatives related to our J. Aron repurchase and MLC terminal obligations is based on estimates of the prices and differentials assuming settlement at the end of the reporting period. Estimates of the J. Aron and MLC settlement prices are based on observable inputs, such as Brent and WTI indices, and unobservable inputs, such as contractual price differentials as defined in the Supply and Offtake Agreement and Washington Refinery Intermediation Agreement. Such contractual differentials vary by location and by the type of product, have a weighted average of $14.07 per barrel, and range from a discount of $17.90 per barrel to a premium of $85.04 per barrel as of December 31, 2022. Contractual price differentials are considered unobservable inputs; therefore, these embedded derivatives are classified as Level 3 instruments. We do not have other commodity derivatives classified as Level 3 at December 31, 2022 or 2021. Please read Note 14—Derivatives for further information on derivatives.

Gross Environmental credit obligations

Estimates of our gross environmental credit obligations are based on the amount of RINs or other environmental credits required to comply with EPA regulations and the market prices of those RINs or other environmental credits as of the end of the reporting period. The gross environmental credit obligations are classified as a Level 2 instruments as we obtain the pricing inputs for our RINs and other environmental credits from brokers based on market quotes on similar instruments. Please read Note 17—Commitments and Contingencies for further information on the EPA regulations related to greenhouse gases.

Financial Statement Impact

Fair value amounts by hierarchy level as of December 31, 2022 and 2021 are presented gross in the tables below (in thousands):


	December 31, 2022
	Level 1		Level 2		Level 3		Gross Fair Value		Effect of Counter-party Netting		Net Carrying Value on Balance Sheet (1)
Assets
Commodity derivatives	$	161,541	$	8,369	$	—	$	169,910	$	(169,415)	$	495





Liabilities


Commodity derivatives	$	(172,529)	$	(7,875)	$	—	$	(180,404)	$	169,415	$	(10,989)
J. Aron repurchase obligation derivative	—		—		(12,156)		(12,156)		—		(12,156)
MLC terminal obligation derivative	—		—		14,435		14,435		—		14,435

Gross environmental credit obligations (2)	—		(549,791)		—		(549,791)		—		(549,791)
Total (3)	$	(172,529)	$	(557,666)	$	2,279	$	(727,916)	$	169,415	$	(558,501)


	December 31, 2021
	Level 1		Level 2		Level 3		Gross Fair Value		Effect of Counter-party Netting		Net Carrying Value on Balance Sheet (1)
Assets
Commodity derivatives	$	4,283	$	4,513	$	—	$	8,796	$	(7,536)	$	1,260






Liabilities


Commodity derivatives	$	(3,964)	$	(5,003)	$	—	$	(8,967)	$	7,536	$	(1,431)
J. Aron repurchase obligation derivative	—		—		(15,151)		(15,151)		—		(15,151)
MLC terminal obligation derivative	—		—		(22,170)		(22,170)		—		(22,170)

Gross environmental credit obligations (2)	—		(311,014)		—		(311,014)		—		(311,014)
Total (3)	$	(3,964)	$	(316,017)	$	(37,321)	$	(357,302)	$	7,536	$	(349,766)

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(1)Does not include cash collateral of $50.3 million and $15.6 million as of December 31, 2022 and 2021, respectively, included within Prepaid and other current assets and Other long-term assets on our consolidated balance sheets.

(2)Does not include RINs assets and other environmental credits of $258.2 million and $120.1 million presented as Inventories on our consolidated balance sheet and stated at the lower of cost and net realizable value as of December 31, 2022 and 2021, respectively.

(3)The interest rate derivative was settled in February 2021, therefore, there is no asset or liability related to the interest rate derivative on December 31, 2022 or 2021. Please read Note 14—Derivatives for further information.

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,
	2022		2021		2020
Balance, beginning of period	$	(37,321)	$	(30,958)	$	(22,750)
Settlements	86,242		61,247		(31,328)

Total gains (losses) included in earnings	(46,642)		(67,610)		23,120
Balance, end of period	$	2,279	$	(37,321)	$	(30,958)

The carrying value and fair value of long-term debt and other financial instruments as of December 31, 2022 and 2021 are as follows (in thousands):


	December 31, 2022
	Carrying Value		Fair Value


ABL Credit Facility due 2025 (2)	$	—	$	—

7.75% Senior Secured Notes due 2025 (1)	277,137		276,785
Term Loan B Facility due 2026 (1)	198,268		201,094





12.875% Senior Secured Notes due 2026 (1)	30,127		34,029


	December 31, 2021
	Carrying Value		Fair Value


ABL Credit Facility due 2025 (2)	$	—	$	—

7.75% Senior Secured Notes due 2025 (1)	290,621		299,700
Term Loan B Facility due 2026 (1)	208,903		214,827




Senior Secured Notes due 2026 (1)	65,034		75,758

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(1)The fair value measurements of the 7.75% Senior Secured Notes, Term Loan B Facility, and 12.875% Senior Secured Notes are considered Level 2 measurements in the fair value hierarchy as discussed below.

(2)The fair value measurements of the ABL Credit Facility is considered Level 3 measurements in the fair value hierarchy.

The fair value of all non-derivative financial instruments recorded in current assets, including cash and cash equivalents, restricted cash, and trade accounts receivable, and current liabilities, including accounts payable, approximated their carrying value due to their short-term nature.

- 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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