HollyFrontier 2013 Annual Report Download - page 57

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49
As of December 31, 2013, we have the following notional contract volumes related to all outstanding derivative contracts used
to mitigate commodity price risk:
Notional Contract Volumes by Year of Maturity
Contract Description
Total
Outstanding
Notional 2014 2015 2016 2017 Unit of
Measure
Natural gas price swap - long 76,800,000 19,200,000 19,200,000 19,200,000 19,200,000 MMBTU
Natural gas price swap - short 38,400,000 9,600,000 9,600,000 9,600,000 9,600,000 MMBTU
WTI price swap - long 18,797,500 16,242,500 2,555,000 — — Barrels
Ultra-low sulfur diesel price swap - short 15,512,500 12,957,500 2,555,000 — — Barrels
Sub octane gasoline price swap - short 3,285,000 3,285,000 — — — Barrels
WCS price swap - long 6,387,500 6,387,500 — — — Barrels
NYMEX futures (WTI) - short 1,946,000 1,946,000 — — — Barrels
Physical contracts - long 300,000 300,000 — — — Barrels
Physical contracts - short 300,000 300,000 — — — Barrels
The following sensitivity analysis provides the hypothetical effects of market price fluctuations to the commodity positions hedged
under our derivative contracts:
Estimated Change in Fair Value at December 31,
Commodity-based Derivative Contracts 2013 2012
(In thousands)
Hypothetical 10% change in underlying commodity prices $ 69,228 $ 29,230
Interest Rate Risk Management
HEP uses interest rate swaps to manage its exposure to interest rate risk.
As of December 31, 2013, HEP had three interest rate swap contracts that hedge its exposure to the cash flow risk caused by the
effects of LIBOR changes on $305.0 million in credit agreement advances. The first interest rate swap effectively converts $155.0
million of LIBOR based debt to fixed rate debt having an interest rate of 0.99% plus an applicable margin of 2.00% as of
December 31, 2013, which equaled an effective interest rate of 2.99%. This swap matures in February 2016. HEP has two additional
interest rate swaps with identical terms which effectively convert $150.0 million of LIBOR based debt to fixed rate debt having
an interest rate of 0.74% plus an applicable margin of 2.00% as of December 31, 2013, which equaled an effective interest rate
of 2.74%. Both of these swap contracts mature in July 2017. These swap contracts have been designated as cash flow hedges.
The market risk inherent in our fixed-rate debt and positions is the potential change arising from increases or decreases in interest
rates as discussed below.
For the fixed rate HollyFrontier Senior Notes and HEP Senior Notes, changes in interest rates will generally affect fair value of
the debt, but not our earnings or cash flows. The outstanding principal, estimated fair value and estimated change in fair value
(assuming a hypothetical 10% change in the yield-to-maturity rates) for these debt instruments as of December 31, 2013 is presented
below:
Outstanding
Principal Estimated
Fair Value
Estimated
Change in
Fair Value
(In thousands)
HollyFrontier Senior Notes $ 150,000 $ 161,250 $ 3,443
HEP Senior Notes $ 450,000 $ 471,750 $ 12,884
For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At December 31,
2013, outstanding borrowings under the HEP Credit Agreement were $363.0 million. By means of its cash flow hedges, HEP has
effectively converted the variable rate on $305.0 million of outstanding principal to a weighted average fixed rate of 2.87%.
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