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Crude Oil Supply and Inventory Purchase Agreement
 9 Months Ended
Sep. 30, 2021
Other Liabilities Disclosure [Abstract]  
Crude Oil Supply and Inventory Purchase Agreement Crude Oil Supply and Inventory Purchase Agreement
Delek has Supply and Offtake Agreements with J. Aron & Company ("J. Aron") in connection with its El Dorado, Big Spring and Krotz Springs refineries (collectively, the "Supply and Offtake Agreements"). Pursuant to the Supply and Offtake Agreements, (i) J. Aron agrees to sell to us, and we agree to buy from J. Aron, at market prices, crude oil for processing at these refineries and (ii) we agree to sell, and J. Aron agrees to buy, at market prices, certain refined products produced at these refineries. The Supply and Offtake Agreements also provide for the lease to J. Aron of crude oil and refined product storage facilities, and the identification of prospective purchasers of refined products on J. Aron’s behalf. At the inception of the Supply and Offtake Agreements, we transferred title to a certain number of barrels of crude and other inventories to J. Aron (the "Step-In"), and the Supply and Offtake Agreements require the repurchase of remaining inventory (including certain "Baseline Volumes") at the termination of those Agreements (the "Step-Out"). The Supply and Offtake Agreements are accounted for as inventory financing arrangements under the fair value election provided by ASC 815 Derivatives and Hedging ("ASC 815") and ASC 825, Financial Instruments ("ASC 825").
Barrels subject to the Supply and Offtake Agreements are as follows (in millions):
El DoradoBig SpringKrotz Springs
Baseline Volumes pursuant to the respective Supply and Offtake Agreements2.0 0.8 1.3 
Barrels of inventory consigned under the respective Supply and Offtake Agreements as of September 30, 2021 (1)
3.3 1.4 1.3 
Barrels of inventory consigned under the respective Supply and Offtake Agreements as of December 31, 2020 (1)
4.0 1.3 1.2 
(1) Includes Baseline Volumes plus/minus over/short quantities.
The Supply and Offtake Agreements have certain termination provisions, which may include requirements to negotiate with third parties for the assignment to us of certain contracts, commitments and arrangements, including procurement contracts, commitments for the sale of product, and pipeline, terminalling, storage and shipping arrangements.
In January 2020, we amended our three Supply and Offtake Agreements so that the repurchase of Baseline Volumes at the end of the Supply and Offtake Agreement term (representing the "Baseline Step-Out Liability" or, collectively, the "Baseline Step-Out Liabilities") was based on market-indexed prices subject to commodity price risk. As a result of the amendment, such Baseline Step-Out Liabilities continued to be recorded at fair value under the fair value election provided by ASC 815 and ASC 825, where the fair value now reflected changes in commodity price risk rather than interest rate risk with subsequent changes in fair value being recorded in cost of materials and other. We recognized a loss in the first quarter of 2020 of $1.5 million on the change in fair value resulting from the modification.
In April 2020, we amended and restated our three Supply and Offtake Agreements to renew and extend the terms to December 30, 2022, with J. Aron having the sole discretion to further extend to May 30, 2025 by giving at least 6 months prior notice to the current maturity date. As part of this amendment, there were changes to the underlying market index, annual fee, the crude purchase fee, crude roll fees and timing of cash settlements related to periodic price adjustments (the "Periodic Price Adjustments"). The Baseline Step-Out Liabilities continue to be recorded at fair value under the fair value election included under ASC 815 and ASC 825. The Baseline Step-Out Liabilities have a floating component whose fair value reflects changes to commodity price risk with changes in fair value recorded in cost of materials and other and a fixed component whose fair value reflects changes to interest rate risk with changes in fair value recorded in interest expense. There was no amendment date change in fair value resulting from the modification. The Baseline Step-Out Liabilities are reflected as non-current liabilities on our consolidated balance sheet to the extent that they are not contractually due within twelve months.
Pursuant to the Periodic Price Adjustments provision in the Supply and Offtake Agreements, the Company may be required to pay down all or a portion of the fixed component of the Baseline Step-Out Liabilities or may receive additional proceeds depending on the change in fair value of the inventory collateral subject to a threshold at certain specified periodic pricing dates (the "Periodic Pricing Dates"), which occur on October 1st and May 1st, annually, not to extend beyond expiration of the Supply and Offtake Agreements. Additionally, at the Periodic Pricing Dates, if a Periodic Price Adjustment is triggered, the prospective pricing underlying the fixed component of the Baseline Step-Out Liabilities will be adjusted to reflect either the pay-down or the incremental proceeds, accordingly. On October 1, 2020, the provision was triggered and a paydown amounting to $20.8 million was made to J. Aron on October 30, 2020. The prospective pricing underlying the fixed component of the Baseline Step-Out liabilities was adjusted accordingly to reflect this payment, resulting in a reduction to the fixed differential component of our long-term Supply and Offtake Obligation totaling $20.8 million and a prospective contractual reset of the fixed differentials subject to future Periodic Price Adjustments. Contemporaneous with the payment, J. Aron separately refunded to us the $10.0 million of deferred additional monthly fees. On May 1, 2021 the provision was triggered and on May 28, 2021, $15.2 million of incremental proceeds were received from J. Aron. Effective June 4, 2021, J. Aron terminated our $10.0 million letter of credit that was issued to them under the terms of the Supply and Offtake Agreements. As of September 30, 2021, the fixed component of the Baseline Step-Out Liabilities subject to the Periodic Price Adjustments amounted to approximately $38.6 million. Some portion of that amount may become due or payable in periods occurring within twelve months, if Periodic Price Adjustments are triggered on the Periodic Pricing Dates.
Monthly activity resulting in over and short volumes continue to be valued using market-indexed pricing, and are included in current liabilities (or receivables) on our condensed consolidated balance sheet. Net balances payable (receivable) under the Supply and Offtake Agreements were as follows as of the balance sheet dates (in millions):
El DoradoBig SpringKrotz SpringsTotal
Balances as of September 30, 2021:
Baseline Step-Out Liability$159.3 $68.3 $102.2 $329.8 
Revolving over/short inventory financing liability99.0 49.4 0.3 148.7 
Total Obligations Under Supply and Offtake Agreements258.3 117.7 102.5 478.5 
Less: Current portion99.0 49.4 0.3 148.7 
Obligations Under Supply and Offtake Agreements - Noncurrent portion$159.3 $68.3 $102.2 $329.8 
Other current receivable for monthly activity true-up$(2.0)$(5.5)$(4.9)$(12.4)
El DoradoBig SpringKrotz SpringsTotal
Balances as of December 31, 2020:
Baseline Step-Out Liability$106.3 $47.9 $70.7 $224.9 
Revolving over/short inventory financing liability (receivable)102.0 25.3 (4.5)122.8 
Total Obligations Under Supply and Offtake Agreements208.3 73.2 66.2 347.7 
Less: Current portion (1)
102.0 25.3 (4.5)122.8 
Obligations Under Supply and Offtake Agreements - Noncurrent portion$106.3 $47.9 $70.7 $224.9 
Other current payable for monthly activity true-up$6.6 $7.0 $— $13.6 
(1) Current portion for Krotz Springs includes $1.9 million of current portion of obligations under Supply and Offtake Agreements and $6.4 million of current assets presented in our condensed consolidated balance sheet.
The Supply and Offtake Agreements require payments of fixed annual fees which are factored into the interest rate yield under the fair value accounting model. Recurring cash fees paid during the periods presented were as follows (in millions):
El DoradoBig SpringKrotz SpringsTotal
Recurring cash fees paid during the three months ended September 30, 2021
$2.5 $0.9 $1.0 $4.4 
Recurring cash fees paid during the three months ended September 30, 2020
$1.5 $0.7 $1.1 $3.3 
Recurring cash fees paid during the nine months ended September 30, 2021
$7.7 $2.4 $3.2 $13.3 
Recurring cash fees paid during the nine months ended September 30, 2020
$7.4 $2.8 $3.1 $13.3 
Interest expense recognized under the Supply and Offtake Agreements includes the yield attributable to recurring cash fees, one-time cash fees (e.g., in connection with amendments), as well as other changes in fair value, which may increase or decrease interest expense. Total interest expense incurred during the periods presented was as follows (in millions):
El DoradoBig SpringKrotz SpringsTotal
Interest expense for the three months ended September 30, 2021
$2.5 $0.9 $1.0 $4.4 
Interest expense for the three months ended September 30, 2020
$1.5 $0.7 $1.1 $3.3 
Interest expense for the nine months ended September 30, 2021
$7.7 $2.4 $3.2 $13.3 
Interest expense for the nine months ended September 30, 2020
$7.8 $5.9 $3.5 $17.2 
Reflected in interest expense are losses totaling $3.9 million for the nine months ended September 30, 2020, related to the changes in fair value in the Baseline Step-Out Liabilities component of Obligations under Supply and Offtake Agreements. There were no such losses for the three and nine months ended September 30, 2021.
We maintained letters of credit under the Supply and Offtake Agreements as follows (in millions):
El DoradoBig Spring and Krotz Springs
Letters of credit outstanding as of September 30, 2021
$170.0 $— 
Letters of credit outstanding as of December 31, 2020
$195.0 $10.0