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Table of Contents HOLLYFRONTIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
77
In 2013, we dedesignated certain commodity price swaps (long positions) that previously received hedge accounting treatment.
These contracts now serve as economic hedges against price risk on forecasted natural gas purchases totaling 19,200,000 MMBTU's
to be purchased ratably through 2017. As of December 31, 2015, we have an unrealized loss of $2.2 million classified in accumulated
other comprehensive loss that relates to the application of hedge accounting prior to dedesignation that is amortized as a charge
to operating expenses as the contracts mature.
Economic Hedges
We also have swap contracts that serve as economic hedges (derivatives used for risk management, but not designated as accounting
hedges) to fix our purchase price on forecasted purchases of WTI crude oil, and to lock in the basis spread differentials on forecasted
purchases of crude oil and natural gas. Also, we have NYMEX futures contracts to lock in prices on forecasted purchases of
inventory. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to income.
The following table presents the pre-tax effect on income due to maturities and fair value adjustments of our economic hedges:
Years Ended December 31,
Location of Gain (Loss) Recognized in Income 2015 2014 2013
(In thousands)
Cost of products sold $ 48,082 $ 68,509 $ 20,751
Operating expenses (12,003) (185) (5,250)
Total $ 36,079 $ 68,324 $ 15,501
As of December 31, 2015, we have the following notional contract volumes related to our outstanding derivative contracts serving
as economic hedges:
Notional Contract Volumes
by Year of Maturity
Derivative Instrument
Total
Outstanding
Notional 2016 2017 Unit of
Measure
Crude price swaps (basis spread) - long 11,712,000 11,712,000 — Barrels
Natural gas price swaps (basis spread) - long 20,616,000 10,308,000 10,308,000 MMBTU
Natural gas price swaps - long 19,200,000 9,600,000 9,600,000 MMBTU
Natural gas price swaps - short 19,200,000 9,600,000 9,600,000 MMBTU
NYMEX futures (WTI) - short 1,840,000 1,840,000 — Barrels
Interest Rate Risk Management
HEP uses interest rate swaps to manage its exposure to interest rate risk.
As of December 31, 2015, 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 2.25% as of
December 31, 2015, which equaled an effective interest rate of 3.24%. 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 2.25% as of December 31, 2015, which equaled an effective interest rate of
2.99%. Both of these swap contracts mature in July 2017. All of these swap contracts have been designated as cash flow hedges.
To date, there has been no ineffectiveness on these cash flow hedges.