Fair Value Measurements (Notes)

12 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS [Text Block]

FAIR VALUE MEASUREMENTS

We classify financial assets and financial liabilities into the following fair value hierarchy:

• level 1 - quoted prices in active markets for identical assets and liabilities;

• level 2 - quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability; and

• level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure fair value using level 1 inputs, when available, because they provide the most reliable evidence of fair value. Derivative instruments and our Renewable Identification Numbers (“RINs”) are our only financial assets and financial liabilities measured at fair value on a recurring basis. See Note J for further information on the Company's derivative instruments.

Our derivative instruments consist primarily of options, exchange-traded futures (“Futures Contracts”), over-the-counter swaps and options (“OTC Swap Contracts” and “OTC Option Contracts,” respectively), and physical commodity forward purchase and sale contracts (“Forward Contracts”). Options are valued using quoted prices from exchanges and are categorized in level 1 of the fair value hierarchy. Futures Contracts are valued based on quoted prices from exchanges and are categorized in level 1 or level 2 of the fair value hierarchy based on the liquidity of the instrument. OTC Swap Contracts, OTC Option Contracts and Forward Contracts are valued using third-party broker quotes, industry pricing services and price curves derived from commodity exchange postings, with consideration of counterparty credit risk. These quotes are corroborated with market data and are categorized in level 2 of the fair value hierarchy. We did not have any derivative assets or liabilities classified as level 3 at December 31, 2011 or December 31, 2010.

Our RINs obligation represents a liability for the purchase of RINs to satisfy our obligation to blend biofuels into the products we produce.  A RIN is assigned to each gallon of biofuel produced or imported into the U.S. as required by the U.S. Environmental Protection Agency's (“EPA’s”) Renewable Fuel Standard, which was implemented in accordance with the Energy Policy Act of 2005 and expanded by the Energy Independence and Security Act of 2007.  The EPA sets annual quotas for the percentage of biofuels that must be blended into transportation fuels consumed in the U.S., and as a producer of transportation fuels from petroleum, we are obligated to blend biofuels into the products we produce at a rate that is at least equal to the EPA’s quota. To the degree we are unable to blend at that rate, we must purchase RINs in the open market to satisfy our obligation.  Our RINs obligation is based on our RINs deficiency and the price of those RINs as of the balance sheet date.  Our RINs obligation is categorized in Level 2 of the fair value hierarchy and is measured at fair value using the market approach based on quoted prices from an independent pricing service.

Financial instruments recognized at their fair values in our consolidated balance sheets by level within the fair value hierarchy were as follows (in millions):

							Netting and			Total as of
	Level 1		Level 2		Level 3		Collateral (a)			December 31, 2011
Assets:
Commodity Futures Contracts	$	86	$	9	$	—	$	(61	)	$	34
Commodity OTC Swap Contracts	—		3		—		(2		)	1
Commodity Forward Contracts	—		4		—		—			4
Total Assets	$	86	$	16	$	—	$	(63	)	$	39
Liabilities:
Commodity Futures Contracts	$	130	$	6	$	—	$	(136	)	$	—
Commodity OTC Swap Contracts	—		3		—		(2		)	1
Commodity Forward Contracts	—		1		—		—			1
RINs Obligation	—		3		—		—			3
Total Liabilities	$	130	$	13	$	—	$	(138	)	$	5

							Netting and			Total as of
	Level 1 (b)		Level 2 (b)		Level 3 (b)		Collateral (a)			December 31, 2010
Assets:
Commodity Futures Contracts	$	81	$	7	$	—	$	(70	)	$	18
Commodity OTC Swap Contracts	—		3		—		(2		)	1
Commodity Forward Contracts	—		2		—		—			2
Total Assets	$	81	$	12	$	—	$	(72	)	$	21
Liabilities:
Commodity Futures Contracts	$	98	$	1	$	—	$	(99	)	$	—
Commodity OTC Swap Contracts	—		2		—		(2		)	—
Commodity Forward Contracts	—		1		—		—			1
Total Liabilities	$	98	$	4	$	—	$	(101	)	$	1

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(a) Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of December 31, 2011 and 2010, cash collateral amounts of $75 million and $29 million, respectively are being netted with mark-to-market derivative assets.

(b) We have presented prior year fair values in each level of the hierarchy gross of netting adjustments in order to conform to current year presentation.

Certain of our derivative contracts, under master netting arrangements, include both asset and liability positions. We have elected to offset both the fair value amounts and any related cash collateral amounts recognized for multiple derivative instruments executed with the same counterparty when there is a legally enforceable right and an intention to settle net or simultaneously.

The physical inventory associated with the futures contracts included in the above table and selected for fair value hedge accounting treatment is adjusted to fair value at the end of the period. The fair value adjustment related to the physical inventory was approximately $4 million at December 31, 2011 and 2010.

The carrying value of our financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities approximate fair value because of the short maturities of these instruments. The fair value of our debt was estimated primarily using quoted market prices. The carrying value and fair value of our debt at December 31, 2011, were approximately $1.7 billion and $1.8 billion, respectively. Both the carrying value and fair value of our debt at December 31, 2010, were approximately $2.0 billion.

The fair value of certain impaired nonfinancial assets measured on a non-recurring basis as of December 31, 2011 and December 31, 2010 were as follows (in millions):

	December 31, 2011		Level 1	Level 2	Level 3	Total Losses for the year ended December 31, 2011
Assets:
Refining equipment and engineering costs	$	5	—	—	5	$	51

	December 31, 2010		Level 1		Level 2		Level 3		Total Losses for the year ended December 31, 2010
Assets:
Refining equipment, materials and engineering costs	$	4	$	—	$	—	$	4	$	20
Goodwill	36		—		—		36		10

We continue to evaluate the recoverability of the value of certain capital projects currently in progress. For one project at our Los Angeles refinery, regulations issued by California's South Coast Air Quality Management District required emission of nitrogen oxides to be reduced by the end of 2010. Our initial plan in 2007 to meet this regulation was to replace our power cogeneration units and steam boilers with more efficient equipment. We began construction for this project in 2008. In 2009, we determined that air emissions credits could be used to meet this requirement, which would allow us to defer capital expenditures related to this project and we incurred a $12 million impairment charge for the cancellation of an equipment order. We revised our capital plan in 2010 to further defer certain components of this project and incurred an impairment charge of $20 million related to this change in scope. Equipment, materials and related unrecoverable engineering costs specifically manufactured and uniquely configured for this project were written down from a carrying value of $24 million to a fair value of $4 million.

During 2011, we concluded that we now expect to sell, rather than use, specific equipment related to the change in scope of this capital project. The equipment and related unrecoverable engineering costs specifically manufactured and uniquely configured for this project were written down from a carrying value of $56 million to a fair value of $5 million, resulting in a $51 million loss included in loss on asset disposals and impairments. The estimated fair value was based on amounts recoverable if sold to an end user, in the principal or most advantageous market for the assets, in an orderly transaction. The amounts presented represent our estimates for unobservable inputs that require significant judgment, for which there is little or no market data.

As discussed in Note G, the annual goodwill impairment review performed during the fourth quarter of 2010 resulted in a write-off related to our Hawaii refinery included in loss on asset disposals and impairments. There were no material goodwill impairments, asset retirement obligation additions or indefinite lived intangible assets that were measured at fair value during the year ended December 31, 2011.