PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
At December 31, 2015, Refining had entered into commitments under the intermediation
agreement with MLC to purchase 515 thousand barrels of refined products and intermediates, with a value of $23,156.
At December 31, 2015,
Refining had commitments to purchase 5.3 million barrels of butane and isobutene through March 2021 under an agreement with a third party. Based on pricing at December 31, 2015, the value of the commitment is $170,776.
In January 2013, the Company entered into an agreement pursuant to which the precious metals catalyst located at the Philadelphia refining
complex was sold and leased back for a three-year period. Precious metal catalyst lease expense was $1,253, $1,129, and $1,187 for the years ended December 31, 2015, 2014, and 2013, respectively. The initial lease ended in January 2016 and was
subsequently renewed for a three year term. At the end of the renewed lease term, the Company has the option to purchase the metals at their market value, renew the lease, or return metals of similar quality to the purchaser of the metals.
Refining is subject
to extensive and frequently changing federal, state, and local laws and regulations, including, but not limited to, those relating to the discharge of materials into the environment or that otherwise relate to the protection of the environment,
waste management, and the characteristics and composition of fuels. As with the industry in general, compliance with existing and anticipated laws and regulations increases the overall cost of operating the Companys businesses, including
remediation, operating costs, and capital costs to construct, maintain, and upgrade equipment and facilities.
Refining has entered into
an arrangement with Sunoco that provides indemnities to the Company for remediating contamination that occurred at the Philadelphia refining complex prior to its acquisition. The Company has reflected liabilities of $17,864 and $18,619 and
receivables of $17,864 and $18,619 for the recovery of Sunocos estimated indemnified environmental liabilities which have not been remediated as of December 31, 2015 and 2014, respectively. The Company did not record any material environmental
remediation expense for the years ended December 31, 2015, 2014 or 2013. The Company has not incurred any material liabilities since September 8, 2012 that would not be indemnified by Sunoco under this arrangement.
Accruals for environmental remediation activities reflect managements estimates of the most likely costs that will be incurred over an
extended period to remediate identified conditions for which the costs are both probable and reasonably estimable. Engineering studies, historical experience, and other factors are used to identify and evaluate remediation alternatives and their
related costs in determining the estimated accruals for environmental remediation activities. Losses attributable to unasserted claims are also reflected in the accruals to the extent they are probable of occurrence and reasonably estimable. Such
accruals are undiscounted. In general, each remediation site/issue is evaluated individually based upon information available for the site/issue and no pooling or statistical analysis is used to evaluate an aggregate risk for a group of similar
items in determining the amount of probable loss accrual to be recorded. The estimates of environmental remediation costs also frequently involve evaluation of a range of estimates. In many cases, it is difficult to determine if one point in the
range of loss estimates is more likely than any other. In these situations, accounting guidance requires that the minimum of the range be accrued. Accordingly, the low end of the range often represents the amount of loss, which has been recorded.
Total future costs for the environmental remediation activities identified above will depend upon the identification of any additional
sites, the determination of the extent of the contamination at each site, the timing and nature of required remedial actions, the nature of operations at each site, the technology available and needed