HollyFrontier 2014 Annual Report Download - page 29

Table of Content
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A material decrease in the supply of crude oil available to our refineries could significantly reduce our production levels.
To maintain or increase production levels at our refineries, we must continually contract for crude oil supplies from third parties.
A material decrease in crude oil production from the fields that supply our refineries, as a result of depressed commodity prices,
lack of drilling activity, natural production declines or otherwise, could result in a decline in the volume of crude oil available to
our refineries. In addition, any prolonged disruption of a significant pipeline that is used in supplying crude oil to our refineries
or the potential operation of a new, converted or expanded crude oil pipeline that transports crude oil to other markets could result
in a decline in the volume of crude oil available to our refineries. Such an event could result in an overall decline in volumes of
refined products processed at our refineries and therefore a corresponding reduction in our cash flow. In addition, the future growth
of our operations will depend in part upon whether we can contract for additional supplies of crude oil at a greater rate than the
rate of natural decline in our currently connected supplies. If we are unable to secure additional crude oil supplies of sufficient
quality or crude pipeline expansion to our refineries, we will be unable to take full advantage of current and future expansion of
our refineries' production capacities.
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:
• denial or delay in issuing requisite regulatory approvals and/or permits;
• compliance with or liability under environmental regulations;
• unplanned increases in the cost of construction materials or labor;
• disruptions in transportation of modular components and/or construction materials;
• severe adverse weather conditions, natural disasters, or other events (such as equipment malfunctions, explosions, fires,
spills) affecting our facilities, or those of vendors and suppliers;
• shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;
• market-related increases in a project's debt or equity financing costs; and/or
• nonperformance or force majeure by, or disputes with, vendors, suppliers, contractors, or sub-contractors involved with
a project.
If we are unable to complete capital projects at their expected costs or in a timely manner our financial condition, results of
operations, or cash flows could be materially and adversely affected. Delays in making required changes or upgrades to our facilities
could subject us to fines or penalties as well as affect our ability to supply certain products we make. In addition, our revenues
may not increase immediately upon the expenditure of funds on a particular project. For instance, if we build a new refinery
processing unit, the construction will occur over an extended period of time and we will not receive any material increases in
revenues until after completion of the project. Moreover, we may construct facilities to capture anticipated future growth in demand
for refined products in a region in which such growth does not materialize. As a result, new capital investments may not achieve
our expected investment return, which could adversely affect our financial condition or results of operations.
Our forecasted internal rates of return are also based upon our projections of future market fundamentals which are not within our
control, including changes in general economic conditions, available alternative supply and customer demand.
An additional component of our growth strategy is to selectively acquire complementary assets for our refining operations in order
to increase earnings and cash flow. Our ability to do so will be dependent upon a number of factors, including our ability to identify
attractive acquisition candidates, consummate acquisitions on favorable terms, successfully integrate acquired assets and obtain
financing to fund acquisitions and to support our growth, and other factors beyond our control. Risks associated with acquisitions
include those relating to:
• diversion of management time and attention from our existing business;
• challenges in managing the increased scope, geographic diversity and complexity of operations and inefficiencies that
may result therefrom;