Derivative Instruments and Fair Value Measurements

9 Months Ended

Sep. 30, 2023

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 September 30, 2023, we had in place one derivative instrument, entered into in 2022, for the purchase of 126,000 gallons of diesel fuel per month during January 2023 through December 2023.

At December 31, 2022, we had in place three derivative instruments, entered into in 2022 for a total of 300,000 barrels of crude oil to be purchased and sold in January 2023, and one derivative instrument, also entered into in 2022, for the purchase of 126,000 gallons of diesel fuel per month during January 2023 through December 2023.

The estimated fair value of forward month derivatives instruments 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
September 30, 2023
Asset derivatives:
Fair value forward derivative instruments
at gross valuation	$	5	$	—	$	—	$	—
Liability derivatives:
Fair value forward derivative instruments
at gross valuation	—		—		—		—
Less counterparty offsets	—		—		—		—
As reported fair value contracts	$	5	$	—	$	—	$	—
December 31, 2022
Asset derivatives:
Fair value forward derivative instruments
at gross valuation	$	—	$	—	$	—	$	—
Liability derivatives:
Fair value forward derivative instruments
at gross valuation	—		—		330		—
Less counterparty offsets	—		—		—		—
As reported fair value contracts	$	—	$	—	$	330	$	—

We only enter into derivative instruments with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At September 30, 2023 and December 31, 2022, 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 derivatives instruments reflected in the accompanying unaudited condensed consolidated statements of operations were as follows for the periods indicated (in thousands):

	Gains (losses)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Revenues – marketing	$	—	$	(14)	$	—	$	(9)
Cost and expenses – marketing	(36)		1,878		(335)		1,253

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
September 30, 2023
Derivatives:
Current assets	$	—	$	5	$	—	$	—	$	5
Current liabilities	—		—		—		—		—
Net value	$	—	$	5	$	—	$	—	$	5
December 31, 2022
Derivatives:
Current assets	$	—	$	—	$	—	$	—	$	—
Current liabilities	—		(330)		—		—		(330)
Net value	$	—	$	(330)	$	—	$	—	$	(330)

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 September 30, 2023 and December 31, 2022, 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.