Derivative Financial Instruments

9 Months Ended

Sep. 30, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

9. Derivative Financial Instruments

Commodity Derivatives

Our petroleum products blending activities produce gasoline products and we can estimate the timing and quantities of sales of these products. We use a combination of forward purchase and sales contracts, NYMEX contracts and butane price swap purchase agreements to lock in most of the product margins realized from our blending activities that we choose to hedge.

We account for the forward purchase and sales contracts we use in our blending activities as normal purchases and sales. As of September 30, 2011, we had commitments under forward purchase contracts for product purchases of approximately 0.4 million barrels that are being accounted for as normal purchases totaling approximately $32.4 million, and we had commitments under forward sales contracts for product sales of approximately 0.7 million barrels that are being accounted for as normal sales totaling approximately $82.7 million.

NYMEX Contracts & Butane Swap Agreements - We use NYMEX contracts and butane swap agreements to help manage commodity price risk. We use NYMEX contracts to hedge against changes in the price of petroleum products we expect to sell in future periods. Our NYMEX contracts fall into one of three categories:

Hedge Type	Hedge Purpose	Accounting Treatment
Qualifies for Hedge Accounting Treatment
Cash Flow Hedge	To hedge the variability in cash flows related to a forecasted transaction.	The effective portion of changes in the value of the hedge are recorded to accumulated other comprehensive income/loss and reclassified to earnings when the forecasted transaction occurs. Any ineffectiveness is recognized currently in earnings.
Fair Value Hedge	To hedge against the changes in the fair value of a recognized asset or liability.	The effective portion of changes in the value of the hedge are recorded as adjustments to the asset or liability being hedged. Any ineffectiveness is recognized currently in earnings.
Does not Qualify For Hedge Accounting Treatment
Economic Hedge	To effectively serve as either a fair value or a cash flow hedge; however, the derivative agreement does not qualify for hedge accounting treatment in accordance with Accounting Standards Codification 815, Derivatives and Hedging.	Changes in the value of these agreements are recognized currently in earnings.

We also use butane swap agreements to hedge against changes in the price of selected butane purchases we expect to complete in the future. We elected to not designate the butane swap agreements we have entered into as hedges for accounting purposes because the related NYMEX contracts associated with the gasoline that will be produced and sold from these future butane purchases did not qualify for hedge accounting treatment. Changes in the fair value of these agreements are recognized currently in earnings. As outlined in the table below, at September 30, 2011, we had open NYMEX contracts representing 3.6 million barrels of petroleum products and open butane swap agreements on the purchase of 0.3 million barrels of butane.

Type of Contract/Accounting Methodology	Product Represented by the Contract and Associated Barrels	Maturity Dates
NYMEX - Cash Flow Hedges	0.6million barrels of refined petroleum products	Between October and December 2011
NYMEX - Fair Value Hedges	0.7million barrels of crude oil	Between October 2011 and November 2013
NYMEX - Economic Hedges	2.3million barrels of refined petroleum products	Between October 2011 and April 2012
Butane Swap Agreements	0.3 million barrels of butane	Between October 2011 and March 2012

At September 30, 2011, the fair value of our open NYMEX contracts was a net asset of $38.2 million and the fair value of our butane swap agreements was a liability of $1.0 million. Combined, the net asset was $37.2 million, of which $36.2 million was recorded as energy commodity derivatives contracts and $1.0 million was recorded as other noncurrent assets on our consolidated balance sheet. At September 30, 2011, we had received margin cash of $7.1 million for these contracts, which were recorded as energy commodity derivatives deposits on our consolidated balance sheet. We have the right to offset the combined fair values of our open NYMEX contracts and our open butane swap agreements against our margin deposits under a master netting arrangement with our counterparty; however, we have elected to disclose the combined fair values of our open NYMEX and butane swap agreements separately from these related margin deposits on our consolidated balance sheet. We have the right of offset under the agreements and, therefore, have offset the fair values of our NYMEX agreements and butane swap agreements together on our consolidated balance sheets.

Interest Rate Derivatives

During 2011, we entered into interest rate swap agreements with respect to $100.0 million of our long-term debt, which were accounted for as fair value hedges, to hedge against changes in the fair value of a portion of our 6.40% notes due 2018. In third quarter 2011, we terminated and settled these interest rate swap agreements and received $6.1 million, of which $5.9 million was recorded as an adjustment to long-term debt and will be amortized over the remaining life of the notes and $0.2 million was recorded as a reduction of accrued interest.

Derivative activity included in accumulated other comprehensive loss ("AOCL") for the three and nine months ended September 30, 2010 and 2011 was as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
Derivative Activity Included in AOCL	2010			2011			2010			2011
Beginning balance	$	3,407		$	7,856		$	1,743		$	3,325
Net gain (loss) on commodity hedges	(179		)	6,539			(468		)	11,152
Reclassification of net gain on interest rate cash flow hedges to interest expense	(41		)	(41		)	(123		)	(123		)
Reclassification of net loss (gain) on commodity hedges to product sales revenues	(1,068		)	(1,493		)	967			(1,493		)
Ending balance	$	2,119		$	12,861		$	2,119		$	12,861

As of September 30, 2011, the net gain estimated to be classified to interest expense and product sales revenues over the next twelve months from AOCL is approximately $0.2 million and $9.7 million, respectively.

The following table provides a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 2010 and 2011 of derivatives accounted for under Accounting Standards Codification ("ASC") 815-25, Derivatives and Hedging—Fair Value Hedges, that were designated as hedging instruments (in thousands): 

Derivative  Instrument	Location of Gain Recognized on Derivative	Amount of Gain Recognized on Derivative								Amount of Interest Expense Recognized on Fixed-Rate Debt (Related Hedged Item)
		Three Months Ended				Nine Months Ended				Three Months Ended					Nine Months Ended
		Sept. 30, 2010		Sept. 30, 2011		Sept. 30, 2010		Sept. 30, 2011		Sept. 30, 2010		Sept. 30, 2011			Sept. 30, 2010			Sept. 30, 2011
Interest rate swap agreements	Interest expense	$	—	$	264	$	4,604	$	1,275	$	—	$	(1,333	)	$	(17,277	)	$	(7,556	)

During 2011, we had open NYMEX contracts on 0.7 million barrels of crude oil which were designated as fair value hedges. Because there was no ineffectiveness recognized on these hedges, the unrealized gains of $1.4 million from the agreements as of September 30, 2011 were fully offset by adjustments of $1.0 million and $0.4 million to tank bottom inventory and other current assets, respectively; therefore, there was no net impact on product sales revenues.

The following is a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 2010 and 2011 of the effective portion of derivatives accounted for under ASC 815-30, Derivatives and Hedging—Cash Flow Hedges, that were designated as hedging instruments (in thousands). See Note 4 - Product Sales Revenues for further details regarding the impact of our NYMEX agreements on product sales.

	Three Months Ended September 30, 2010 Effective Portion
Derivative Instrument	Amount of Loss Recognized in AOCL on Derivative				Location of Gain  Reclassified from AOCL into Income	Amount of Gain Reclassified from AOCL into Income
Interest rate swap agreements		$	—		Interest expense		$	41
NYMEX commodity contracts		(179		)	Product sales revenues		1,068
Total cash flow hedges		$	(179	)	Total		$	1,109
	Three Months Ended September 30, 2011 Effective Portion
Derivative Instrument	Amount of Gain Recognized in AOCL on Derivative				Location of Gain Reclassified from AOCL into Income	Amount of Gain  Reclassified from AOCL into Income
Interest rate swap agreements		$	—		Interest expense		$	41
NYMEX commodity contracts		6,539			Product sales revenues		1,493
Total cash flow hedges		$	6,539		Total		$	1,534

	Nine Months Ended September 30, 2010 Effective Portion
Derivative Instrument	Amount of Loss Recognized in AOCL on Derivative				Location of Gain (Loss)  Reclassified from AOCL into Income	Amount of Gain (Loss) Reclassified from AOCL into Income
Interest rate swap agreements		$	—		Interest expense		$	123
NYMEX commodity contracts		(468		)	Product sales revenues		(967		)
Total cash flow hedges		$	(468	)	Total		$	(844	)
	Nine Months Ended September 30, 2011 Effective Portion
Derivative Instrument	Amount of Gain Recognized in AOCL on Derivative				Location of Gain Reclassified from AOCL into Income	Amount of Gain  Reclassified from AOCL into Income
Interest rate swap agreements		$	—		Interest expense		$	123
NYMEX commodity contracts		11,152			Product sales revenues		1,493
Total cash flow hedges		$	11,152		Total		$	1,616

There was no ineffectiveness recognized for any of our cash flow or fair value hedges during the three and nine months ended September 30, 2010 or 2011.

The following table provides a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 2010 and 2011 of derivatives accounted for under ASC 815-10-35; Derivatives and Hedging—Overall—Subsequent Measurement, that were not designated as hedging instruments (in thousands):

		Amount of Gain (Loss) Recognized on Derivative
		Three Months  Ended September 30,						Nine Months Ended September 30,
Derivative Instrument	Location of Gain (Loss) Recognized on Derivative	2010			2011			2010		2011
NYMEX commodity contracts	Product sales revenues	$	(8,466	)	$	28,579		$	8,366	$	(7,604	)
NYMEX commodity contracts	Operating expenses	—			(923		)	—		598
Butane swap contracts	Product purchases	—			(50		)	—		(889		)
	Total	$	(8,466	)	$	27,606		$	8,366	$	(7,895	)

The following tables provide a summary of the amounts included on our consolidated balance sheets of the fair value of derivatives accounted for under ASC 815, Derivatives and Hedging, that were designated as hedging instruments as of December 31, 2010 and September 30, 2011 (in thousands):

	December 31, 2010
	Asset Derivatives			Liability Derivatives
Derivative Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
NYMEX commodity contracts	Other noncurrent assets	$	—	Other noncurrent liabilities	$	4,920
	September 30, 2011
	Asset Derivatives			Liability Derivatives
Derivative Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
NYMEX commodity contracts	Energy commodity derivatives contracts, net	$	8,689	Energy commodity derivatives contracts, net	$	—
NYMEX commodity contracts	Other noncurrent assets	1,030		Other noncurrent liabilities	—
	Total	$	9,719	Total	$	—

The following tables provide a summary of the amounts included on our consolidated balance sheets of the fair value of derivatives accounted for under ASC 815, Derivatives and Hedging, that were not designated as hedging instruments as of December 31, 2010 and September 30, 2011 (in thousands):

	December 31, 2010
	Asset Derivatives			Liability Derivatives
Derivative Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
NYMEX commodity contracts	Energy commodity derivatives contracts, net	$	—	Energy commodity derivatives contracts, net	$	11,790
	September 30, 2011
	Asset Derivatives			Liability Derivatives
Derivative Instrument	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
NYMEX commodity contracts	Energy commodity derivatives contracts, net	$	28,497	Energy commodity derivatives contracts, net	$	—
Butane swap contracts	Energy commodity derivatives contracts, net	—		Energy commodity derivatives contracts, net	981
	Total	$	28,497	Total	$	981