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Fair Value Measurements
 9 Months Ended
Sep. 30, 2017
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Common Stock Warrants
As of September 30, 2017 and December 31, 2016, we had 354,350 common stock warrants outstanding. We estimate the fair value of our outstanding common stock warrants using the difference between the strike price of the warrant and the market price of our common stock, which is a Level 3 fair value measurement. As of September 30, 2017 and December 31, 2016, the warrants had a weighted-average exercise price of $0.09 and $0.10 and a remaining term of 4.92 years and 5.67 years, respectively.
The estimated fair value of the common stock warrants was $20.73 and $14.49 per share as of September 30, 2017 and December 31, 2016, respectively.
Derivative Instruments
We utilize crude oil commodity derivative contracts to manage our price exposure to our inventory positions, future purchases of crude oil, and future sales of refined products. We utilize interest rate swaps to manage our interest rate risk.
We classify financial assets and liabilities according to the fair value hierarchy. Financial assets and liabilities classified as Level 1 instruments are valued using quoted prices in active markets for identical assets and liabilities. These include our exchange traded futures. Level 2 instruments are valued using quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Our Level 2 instruments include OTC swaps and options. These commodity derivatives are valued using market quotations from independent price reporting agencies and commodity exchange price curves that are corroborated with market data. Level 3 instruments are valued using significant unobservable inputs that are not supported by sufficient market activity. The valuation of our J. Aron repurchase obligation derivative requires that we make estimates of the prices and differentials assuming settlement at the end of the reporting period; therefore, it is classified as a Level 3 instrument. We do not have other commodity derivatives classified as Level 3 at September 30, 2017 or December 31, 2016. Please read Note 9—Derivatives for further information on derivatives.
Financial Statement Impact
Fair value amounts by hierarchy level as of September 30, 2017 and December 31, 2016 are presented gross in the tables below (in thousands):
 
September 30, 2017
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Effect of Counter-Party Netting
 
Net Carrying Value on Balance Sheet (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
235

 
$
28,733

 
$
—

 
$
28,968

 
$
(26,836
)
 
$
2,132

Interest rate derivatives
—

 
2,966

 
—

 
2,966

 
—

 
2,966

Total
$
235

 
$
31,699

 
$
—

 
$
31,934

 
$
(26,836
)
 
$
5,098

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Common stock warrants
$
—

 
$
—

 
$
(7,345
)
 
$
(7,345
)
 
$
—

 
$
(7,345
)
Commodity derivatives
(150
)
 
(26,744
)
 
—

 
(26,894
)
 
26,836

 
(58
)
J. Aron repurchase obligation derivative
—

 
—

 
(24,995
)
 
(24,995
)
 
—

 
(24,995
)
Total
$
(150
)
 
$
(26,744
)
 
$
(32,340
)
 
$
(59,234
)
 
$
26,836

 
$
(32,398
)
 
December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Gross Fair Value
 
Effect of Counter-Party Netting
 
Net Carrying Value on Balance Sheet (1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
190

 
$
26,095

 
$
—

 
$
26,285

 
$
(23,537
)
 
$
2,748

Interest rate derivatives
—

 
3,602

 
—

 
3,602

 
(64
)
 
3,538

Total
$
190

 
$
29,697

 
$
—

 
$
29,887

 
$
(23,601
)
 
$
6,286

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Common stock warrants
$
—

 
$
—

 
$
(5,134
)
 
$
(5,134
)
 
$
—

 
$
(5,134
)
Commodity derivatives
(54
)
 
(24,078
)
 
—

 
(24,132
)
 
23,537

 
(595
)
J. Aron repurchase obligation derivative
—

 
—

 
(20,000
)
 
(20,000
)
 
—

 
(20,000
)
Interest rate derivatives
—

 
(158
)
 
—

 
(158
)
 
64

 
(94
)
Total
$
(54
)
 
$
(24,236
)
 
$
(25,134
)
 
$
(49,424
)
 
$
23,601

 
$
(25,823
)
_________________________________________________________
(1)
Does not include cash collateral of $7.7 million and $9.7 million as of September 30, 2017 and December 31, 2016, respectively, included within Prepaid and other current assets and Other long-term assets on our condensed consolidated balance sheets.
A roll forward of Level 3 financial instruments measured at fair value on a recurring basis is as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Balance, at beginning of period
$
(7,324
)
 
$
(8,564
)
 
$
(25,134
)
 
$
(25,867
)
Settlements
—

 
—

 
—

 
16,810

Total unrealized income (loss) included in earnings
(25,016
)
 
(6,618
)
 
(7,206
)
 
(6,125
)
Balance, at end of period
$
(32,340
)
 
$
(15,182
)
 
$
(32,340
)
 
$
(15,182
)
The carrying value and fair value of long-term debt and other financial instruments as of September 30, 2017 and December 31, 2016 are as follows (in thousands):
 
September 30, 2017
 
Carrying Value
 
Fair Value (1)
Hawaii Retail Credit Agreement (2)
$
83,773

 
$
83,773

5.00% Convertible Senior Notes due 2021 (3)
94,328

 
154,116

J. Aron Forward Sale
27,855

 
27,523

Par Wyoming Holdings Term Loan (2)
66,091

 
66,091

Wyoming Refining Senior Secured Term Loan (2)
48,652

 
48,652

Wyoming Refining Senior Secured Revolver (2)
9,502

 
9,502

Common stock warrants
7,345

 
7,345

 
December 31, 2016
 
Carrying Value
 
Fair Value (1)
Hawaii Retail Credit Agreement (2)
$
93,853

 
$
93,853

5.00% Convertible Senior Notes due 2021 (3)
91,029

 
122,229

Term Loan
57,426

 
62,367

Par Wyoming Holdings Term Loan (2)
65,908

 
65,908

Wyoming Refining Senior Secured Term Loan (2)
55,480

 
55,480

Wyoming Refining Senior Secured Revolver (2)
6,700

 
6,700

Common stock warrants
5,134

 
5,134

_________________________________________________________
(1)
The fair values of these instruments are considered Level 3 measurements in the fair value hierarchy with the exception of the fair value measurement of the 5.00% Convertible Senior Notes which is considered a Level 2 measurement as discussed below.
(2)
Fair value approximates carrying value due to the debt’s floating rate interest which approximates current market value.
(3)
The carrying value of the 5.00% Convertible Senior Notes excludes the fair value of the equity component, which was classified as equity upon issuance.
We estimated the fair value of the J. Aron Forward Sale using a discounted cash flow analysis and an assumed yield of 8.00% as of September 30, 2017 by reference to market interest rates for similar debt instruments of comparable companies.
We estimated the fair value of the Term Loan using a discounted cash flow analysis and an estimate of the current yield of 11.06% as of December 31, 2016 by reference to market interest rates for term debt of comparable companies.
The fair value of the 5.00% Convertible Senior Notes was determined by aggregating the fair value of the liability and equity components of the notes. The fair value of the liability component of the 5.00% Convertible Senior Notes was determined using a discounted cash flow analysis in which the projected interest and principal payments were discounted at an estimated market yield for a similar debt instrument without the conversion feature. The equity component was estimated based on the Black-Scholes model for a call option with strike price equal to the conversion price, a term matching the remaining life of the 5.00% Convertible Senior Notes, and an implied volatility based on market values of options outstanding as of September 30, 2017. The fair value of the 5.00% Convertible Senior Notes is considered a Level 2 measurement in the fair value hierarchy.
The fair value of all non-derivative financial instruments recorded in current assets, including cash and cash equivalents, restricted cash, and trade accounts receivable, and current liabilities, including accounts payable, approximate their carrying value due to their short-term nature.