HollyFrontier 2013 Annual Report Download - page 29

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Item 1A. Risk Factors
Investing in us involves a degree of risk, including the risks described below. Our operating results have been, and will continue
to be, affected by a wide variety of risk factors, many of which are beyond our control, that could have adverse effects on profitability
during any particular period. You should carefully consider the following risk factors together with all of the other information
included in this Annual Report on Form 10-K, including the financial statements and related notes, when deciding to invest in us.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and
adversely affect our business operations. If any of the following risks were to actually occur, our business, financial condition or
results of operations could be materially and adversely affected.
The prices of crude oil and refined products materially affect our profitability, and are dependent upon many factors that are
beyond our control, including general market demand and economic conditions, seasonal and weather-related factors, regional
and grade differentials and governmental regulations and policies.
Among these factors is the demand for crude oil and refined products, which is largely driven by the conditions of local and
worldwide economies as well as by weather patterns and the taxation of these products relative to other energy sources.
Governmental regulations and policies, particularly in the areas of taxation, energy and the environment, also have a significant
impact on our activities. Operating results can be affected by these industry factors, product and crude pipeline capacities, changes
in transportation costs, accidents or interruptions in transportation, competition in the particular geographic areas that we serve,
and factors that are specific to us, such as the success of particular marketing programs and the efficiency of our refinery operations.
The demand for crude oil and refined products can also be reduced due to a local or national recession or other adverse economic
condition that results in lower spending by businesses and consumers on gasoline and diesel fuel, higher gasoline prices due to
higher crude oil prices, a shift by consumers to more fuel-efficient vehicles or alternative fuel vehicles (such as ethanol or wider
adoption of gas/electric hybrid vehicles), or an increase in vehicle fuel economy, whether as a result of technological advances by
manufacturers, legislation mandating or encouraging higher fuel economy or the use of alternative fuel.
We do not produce crude oil and must purchase all our crude oil, the price of which fluctuates based upon worldwide and local
market conditions. Our profitability depends largely on the spread between market prices for refined petroleum products and crude
oil prices. This margin is continually changing and may fluctuate significantly from time to time. Crude oil and refined products
are commodities whose price levels are determined by market forces beyond our control. For example, the reversal of certain
existing pipelines or the construction of certain new pipelines transporting additional crude oil or refined products to markets that
serve competing refineries could affect the market dynamic that has allowed us to take advantage of favorable pricing. Additionally,
due to the seasonality of refined products markets and refinery maintenance schedules, results of operations for any particular
quarter of a fiscal year are not necessarily indicative of results for the full year and can vary year to year in the event of unseasonably
cool weather in the summer months and / or unseasonably warm weather in the winter months in the markets in which we sell our
petroleum products. In general, prices for refined products are influenced by the price of crude oil. Although an increase or decrease
in the price for crude oil may result in a similar increase or decrease in prices for refined products, there may be a time lag in the
realization of the similar increase or decrease in prices for refined products. The effect of changes in crude oil prices on operating
results therefore depends in part on how quickly refined product prices adjust to reflect these changes. A substantial or prolonged
increase in crude oil prices without a corresponding increase in refined product prices, a substantial or prolonged decrease in
refined product prices without a corresponding decrease in crude oil prices, or a substantial or prolonged decrease in demand for
refined products could have a significant negative effect on our earnings and cash flow. Also, crude oil supply contracts are generally
short-term contracts with market-responsive pricing provisions. We purchase our refinery feedstocks weeks before manufacturing
and selling the refined products. Price level changes during the period between purchasing feedstocks and selling the manufactured
refined products from these feedstocks could have a significant effect on our financial condition and results of operations.
We may not be able to successfully execute our business strategies to grow our business. Further, if we are unable to complete
capital projects at their expected costs or in a timely manner, if we are unsuccessful in integrating the operations of assets we
acquire, or if the market conditions assumed in our project economics deteriorate, our financial condition, results of operations,
or cash flows could be materially and adversely affected.
One of the ways we may grow our business is through the construction of new refinery processing units (or the purchase and
refurbishment of used units from another refinery) and the expansion of existing ones. Projects are generally initiated to increase
the yields of higher-value products, increase the amount of lower cost crude oils that can be processed, increase refinery production
capacity, meet new governmental requirements, or maintain the operations of our existing assets. Additionally, our growth strategy
includes projects that permit access to new and/or more profitable markets. The construction process involves numerous regulatory,
environmental, political, and legal uncertainties, most of which are not fully within our control, including:
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