Derivative Instruments and Fair Value Measurements

Derivative Instruments

Our crude oil marketing segment is involved in the purchase and sale of crude oil. We seek to profit by procuring the commodity as it is produced and then delivering the material to the end users or the intermediate use marketplace. As typical for the industry, such transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts. Some of these contracts meet the definition of a derivative instrument, and therefore, we account for such contracts at fair value, unless the normal purchase and sale exception is applicable. Such underlying contracts are standard for the industry and are the governing document for our crude oil marketing segment. None of our derivative instruments have been designated as hedging instruments.

At September 30, 2017, our commodity purchase and sale contracts had a fair value of zero. At December 31, 2016, the estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheet were as follows (in thousands):



	December 31, 2016
	Balance Sheet Location and Amount
	Current			Other		Current			Other
	Assets			Assets		Liabilities			Liabilities
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	$	378		$	—	$	—		$	—
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	—			—		330			—
Less counterparty offsets	(266		)	—		(266		)	—
As reported fair value contracts	$	112		$	—	$	64		$	—

At December 31, 2016, our derivative valuations were comprised of two commodity purchase and sale contracts. These contracts encompassed approximately 65 barrels per day of diesel fuel during January through March 2017 and 145,000 barrels of crude oil during January 2017 through April 2017.

We only enter into commodity contracts with creditworthy counterparties, and we evaluate our exposure to significant counterparties on an ongoing basis. At September 30, 2017 and December 31, 2016, we were not holding nor have we posted any collateral to support our forward month fair value derivative activity. We are not subject to any credit-risk related trigger events. We have no other financial investment arrangements that would serve to offset our derivative contracts.

Forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated statements of operations were as follows for the periods indicated (in thousands):



	Earnings (losses)
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017			2016		2017			2016

Revenues – Marketing	$	(748	)	$	180	$	(48	)	$	304

Fair Value Measurements

At September 30, 2017, we had no Level 1, 2 or 3 financial assets and liabilities with value. The following tables set forth, by level with the Level 1, 2 and 3 fair value hierarchy, the carrying values of our financial assets and liabilities at December 31, 2016 (in thousands):



	December 31, 2016
	Fair Value Measurements Using
	Quoted Prices
	in Active		Significant
	Markets for		Other			Significant
	Identical Assets		Observable			Unobservable
	and Liabilities		Inputs			Inputs		Counterparty
	(Level 1)		(Level 2)			(Level 3)		Offsets			Total
Derivatives:
Current assets	$	—	$	378		$	—	$	(266	)	$	112
Current liabilities	—		(330		)	—		266			(64		)
Net value	$	—	$	48		$	—	$	—		$	48

These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input used to estimate their fair value. Our assessment of the relative significance of such inputs requires judgments.

When determining fair value measurements, we make credit valuation adjustments to reflect both our own nonperformance risk and our counterparty’s nonperformance risk. When adjusting the fair value of derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements. Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by us or our counterparties. At September 30, 2017 and December 31, 2016, credit valuation adjustments were not significant to the overall valuation of our fair value contracts. As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.

Nonrecurring Fair Value Measurements

Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The following table presents categories of long-lived assets that were subject to non-recurring fair value measurements during the nine months ended September 30, 2017 (in thousands):



			Fair Value Measurements at the End of the Reporting Period Using
			Quoted Prices
			in Active		Significant
	Carrying		Markets for		Other		Significant		Total
	Value at		Identical Assets		Observable		Unobservable		Non-Cash
	September 30,		and Liabilities		Inputs		Inputs		Impairment
	2017		(Level 1)		(Level 2)		(Level 3)		Loss

Investment in AREC	$	3,200	$	—	$	3,200	$	—	$	3,505
Investment in VestaCare	—		—		—		—		2,500
									$	6,005