Derivative Instruments and Fair Value Measurements

3 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Fair Value Measurements

Derivative Instruments and Fair Value Measurements

Derivative Instruments

In the normal course of our operations, our crude oil marketing segment purchases and sells 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, these 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 these contracts at fair value, unless the normal purchase and sale exception is applicable. These types of 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 March 31, 2021, we had in place seven commodity purchase and sale contracts, of which five had a fair value associated with them as the contractual prices of crude oil were outside of the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately 740 barrels per day of crude oil during April 2021 through December 2021.

At December 31, 2020, we had in place six commodity purchase and sale contracts, of which three had a fair value associated with them as the contractual prices of crude oil were outside the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately 192 barrels per day of crude oil during January 2021 through December 2021.

The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheets were as follows at the dates indicated (in thousands):

	Balance Sheet Location and Amount
	Current		Other		Current		Other
	Assets		Assets		Liabilities		Liabilities
March 31, 2021
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	$	576	$	—	$	—	$	—
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	—		—		546		—
Less counterparty offsets	—		—		—		—
As reported fair value contracts	$	576	$	—	$	546	$	—
December 31, 2020
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	$	61	$	—	$	—	$	—
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	—		—		52		—
Less counterparty offsets	—		—		—		—
As reported fair value contracts	$	61	$	—	$	52	$	—

We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At March 31, 2021 and December 31, 2020, 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):

	Gains (losses)
	Three Months Ended
	March 31,
	2021		2020
Revenues – marketing	$	20	$	19

Fair Value Measurements

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 the dates indicated (in thousands):

	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
March 31, 2021
Derivatives:
Current assets	$	—	$	576	$	—	$	—	$	576
Current liabilities	—		(546)		—		—		(546)
Net value	$	—	$	30	$	—	$	—	$	30
December 31, 2020
Derivatives:
Current assets	$	—	$	61	$	—	$	—	$	61
Current liabilities	—		(52)		—		—		(52)
Net value	$	—	$	9	$	—	$	—	$	9

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 these 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 March 31, 2021 and December 31, 2020, 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.