PBF Energy 2012 Annual Report Download - page 139

PBF ENERGY INC. AND SUBSIDIARIES
(COMBINED AND CONSOLIDATED WITH PBF ENERGY COMPANY LLC AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE, UNIT AND BARREL DATA)
18 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses derivative instruments to mitigate certain exposures to commodity price risk. The Company’s
crude supply agreements contain purchase obligations for certain volumes of crude oil and other feedstocks. The
Company was also party to an agreement that contained purchase obligations for certain volumes of stored
intermediates inventory during the years ended December 31, 2012 and 2011, which was terminated during the
first quarter of 2012. The purchase obligations related to crude oil and feedstocks are derivative instruments that
have been designated as fair value hedges in order to hedge the commodity price volatility of certain refinery
inventory beginning July 1, 2011. The fair value of these purchase obligation derivatives is based on market
prices of crude oil and intermediates in the future. The level of activity for these derivatives is based on the level
of operating inventories.
As of December 31, 2012, there were 2,529,447 barrels of crude oil and feedstocks (3,101,333 barrels at
December 31, 2011) outstanding under these derivative instruments designated as fair value hedges and no
barrels (117,848 barrels at December 31, 2011) outstanding under these derivative instruments not designated as
hedges. These volumes represent the notional value of the contract.
The Company also enters into economic hedges primarily consisting of commodity derivative contracts that are
not designated as hedges and are used to manage price volatility in certain crude oil and feedstock inventories as
well as crude oil, feedstock, and refined product sales or purchases. The objective in entering into economic
hedges is consistent with the objectives discussed above for fair value hedges. As of December 31, 2012, there
were 9,234,000 barrels of crude oil and 1,310,000 barrels of refined products (7,000 and 349,000, respectively, as
of December 31, 2011), outstanding under short and long term future commodity derivative contracts not
designated as hedges representing the notional value of the contracts.
The following tables provide information about the fair values of these derivative instruments as of
December 31, 2012 and 2011 and the line items in the consolidated balance sheet in which the fair values are
reflected. See Note 17 for additional information related to the fair values of derivative instruments.
Description Balance Sheet Location
Fair Value
Asset/(Liability)
Derivatives designated as hedging instruments:
December 31, 2012:
Derivatives included with inventory supply
arrangement obligations ................ Accrued expenses $ 5,595
December 31, 2011:
Derivatives included with inventory supply
arrangement obligations ................ Accrued expenses $(1,465)
Derivatives not designated as hedging
instruments:
December 31, 2012:
Derivatives included with inventory supply
arrangement obligations ................ Accrued expenses $ —
Commodity contracts .................... Accounts receivable $ 1,431
December 31, 2011:
Derivatives included with inventory supply
arrangement obligations ................ Accrued expenses $(1,605)
Commodity contracts .................... Accounts receivable $ 72
F-47
18 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES